TFSAs: Cutting Taxes for the Affluent
The latest issue of the Canadian Tax Journal has a number of articles on Tax-Free Savings Accounts. Among the papers of interest: Kevin Milligan projects the potential tax impact of accumulated TFSA contribution room by estimating what a mature TFSA would have meant for income taxation in 2005. Even short of doubling the contribution limit to $10,000, Milligan finds a near “revolutionary” decline in the total federal tax base, leading to “an appreciably different income tax than exists today.” Maureen Donnelly and Allister Young look at the slightly-longer UK experience with Individual Savings Accounts (ISAs), a plan similar to TFSAs. They find that beneficiaries of TFSAs are likely to be predominantly older, wealthier taxpayers, with relatively little benefit for low-income individuals. Rhys Kesselman argues that without a series of reforms, expanding the TFSA contribution limit would aggravate the TFSA’s existing deficiencies and result in a windfall for high income earners, allowing high earners to shelter additional wealth from income tax, and leading to higher GIS payments/lower OAS recovery tax.
(From my colleague, Chris Roberts.)