The trouble with tax-free savings accounts

Daniel Tencer reviews two new studies into the public policy implications of tax-free savings accounts, which were introduced by the Harper government in 2008.

While one in three British taxpayers now have a tax-free account, that drops to as low as one in 20 among low-income earners, the study found. “The introduction of ISAs has done little, if anything, to break down the barriers to saving faced by low-income individuals,” the study says. Not surprisingly, the main reason for not participating in the accounts was a lack of money to put in them...

Meanwhile a study from UBC economics professor Kevin Milligan, also published at the CTF, estimates that the government could have a hard time raising revenue as TFSAs grow older and larger. Milligan notes that, because TFSAs accumulate over time, eventually Canadians will have a large portion -- if not all -- of their assets sheltered from taxation altogether.

The current issue of the Canadian Tax Journal includes two other papers on TFSAs: one from Jonathan Rhys Kesselman on possible reforms and one from Finn Poschmann on reasons for expanding TFSAs.