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Tax-free savings accounts and registered retirement saving plans are supposed to encourage people to save more. But one of the fathers of the TFSA questions whether this is happening. Rhys Kesselman, now the Canada Research Chair in Public Finance at Simon Fraser University, said the tax breaks available from TFSAs and RRSPs don't seem to be motivating middle-income people to ramp up their saving.
As a result, it's arguable that the benefit of these programs flows mainly to higher income people. "A lot of it is tax reduction without necessarily significant – in the aggregate – additional saving," Mr. Kesselman said in interview with CBC.
Mr. Kesselman and a colleague first proposed the TFSA back in 2001. Today, he warns that changes may be ahead for the program. For example, he said it's likely the government will address a rule allowing people to accumulate huge TFSA balances and then make withdrawals in retirement that don't trigger Old Age Security clawbacks.
TFSAs were introduced in 2009 and the cumulative annual contribution room over the years totals $52,000. However, the Canada Revenue Agency has confirmed that there are already some million-dollar TFSAs. The more success people have in building their TFSAs, the more pressure may build for the government to make them less generous.
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