Monday, April 11, 2011

TFSA limits to be DOUBLED!

Oh Yeah! ..... PM Harper has announced that as soon as the federal budget is balanced (circa 2030?) TFSA contribution limits will double to $10,000 a year. This is absolutely wonderful news for all the savers out there. No longer will you have to pay income tax on your unsheltered hard earned 0.50% interest. Just imagine the savings! It should easily be enough for an extra double double at least once a year. Finally, hard working Canadians like you will be justly rewarded for their thrift.

Now you may hear some whiners out there saying that this is just another tax break for the wealthier in our society. You know, the people who have run out of contribution room on their RRSPs, their RESPs, and their $5,000 TSFAs. Surely these whiners don't know what they are talking about. There is no way that someone making say $250,000 a year with two children would ever be able to max out these deductions. By the time they make mortgage payments, car payments, private school tuition, ski vacations, European vacations, golf club memberships, and doggie day spas there is no way they could have enough extra income to benefit from this increase in limits. No this is not a break for the wealthy.

The true beneficiary of this visionary change will be your average Stephen. No longer forced to save through an RRSP, with its limited tax benefits (if you are in a lower tax bracket you only get a small percentage refund) and penalties for early withdrawals, average Stephen will be able to save, tax sheltered (just like the rich), and with maximum flexibility. If he needs his money, say to buy a new big screen TV, he will be able to easily access it, without penalty.

Of course there are other nervous Nellies out there that wonder about the long term impact on people's retirement savings from these changes. Not to worry. In fact, according to our calculations and projections, the increased TSFA allowances will convince many Canadians to bypass the restrictive RRSPs all together. When they put their money into a TSFA instead of an RRSP the government does not have to give them a tax refund, so it saves lots of money and therefore will be able to reduce the federal deficit even more quickly. Of course this will mean less tax revenue in later years, but by then PM Harper will be long gone, so who cares.

Let's not forget that there are also well deserved benefits for investors, the people who risk their money to provide us all with jobs. At $20,000 a year for an average couple, within 5 years they would be able to put away $100,000 (and $200,000 in 10 years) and invest it with all their capital gains being totally tax free! Just think of the wonders this will do for job creation as well as rightly rewarding the risk takers in our society.

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