Canada's Department of Finance announced Monday that the amount savers and investors can put into the Tax-Free Savings Accounts (TFSAs) will rise an additional $500 from $5,000 to $5,500 per year starting Jan. 1, 2013.
Minister of State (finance) Ted Menzies and Revenue Minister Gail Shea confirmed the TFSA increase and said the federal government made the decision to index the contribution limit to inflation with $500 increments.
Prime Minister Stephen Harper’s Conservatives have promised to double the TFSA limit once the federal budget is balanced. However, the budget deficit is expected to remain until at least 2015, which means the TFSAs wouldn’t reach more than $10,000 for another few years.
“Our Government remains committed to our low-tax plan for jobs and growth and we are very pleased to offer Canadians ways to save on taxes and keep more of their hard-earned money,” said Minister Menzies in a news release. “TFSAs have become an exceedingly valuable savings tool for so many Canadians.”
The government touted the success of TFSAs. It noted that 8.2 million Canadians have established a TFSA and 2.5 million contributed the maximum $5,000 limit last year. Based on the four years worth of contributions, Canadians could have saved $20,000 tax-free.
“We encourage all Canadians to take advantage of TFSAs as a valuable way to save for the future and to save on their taxes,” added the state finance minister.
Although nearly half of eligible Canadians hold TFSAs, Digital Journal reported on a poll that was taken that showed nearly half of those that actually have an account aren’t really using it at all. Also, many have said that they have no real plans for their TFSA.
All adult Canadians are eligible to open up a TFSA and can use it for various investment strategies, such as guaranteed investment certificates (GICs), mutual funds and general savings accounts. Any unused contributions can be deposited the following year.
“We believe in the TFSA as a savings vehicle,” said Joel Lalonde, Executive Vice-President of Your Credit Union. “Our member owners have been waiting for this increase and will take advantage of it.”