The next federal budget — possibly delivered next month – will likely see the current annual TFSA contribution limit increased to between $10,000 and $11,000.

But the Canadian Centre for Policy Alternatives (CCPA) has called for a lifetime cap of $36,500 in its 20th annual alternative federal budget, released Thursday.

The left-leaning, Ottawa-based think tank says imposing the TFSA lifetime limit would result in $100 million in annual savings for Ottawa’s coffers.

Read: Raising TFSA limit not as good as it sounds

CCPA senior economist David Macdonald tells Advisor.ca that most lower-income Canadians won’t be able to afford to maximize higher contribution limits, and that the extra room would only benefit wealthier Canadians — a point the Office of the Parliamentary Budget Officer made last month. The PBO said the program’s benefits are skewed to “higher income, higher wealth and older households.”

MacDonald, who helped write the CCPA’s alternative federal budget (AFB), says 40% of Canadians can’t afford to take full advantage of the tax breaks offered in either TFSAs or RRSPs. Regarding the latter, the AFB would set an annual $20,000 limit for RRSP contributions, which currently rise every year and are capped at $24,930 for 2015.

The $20,000 cap affects those with annual incomes of $110,000 or more, which the CCPA says would result $1.1 billion in increased tax revenue annually.

Read: What’s in store for Budget 2015?

The AFB would save the federal government a further $1.1 billion annually by cancelling pension income splitting, “which disproportionately rewards high-income families and creates fiscal disincentives for women to retain independent […] pension income.”

Gone too would be family income splitting (another $2 billion in annual savings) and the stock-option deduction that allows CEOs and executives to pay tax on their compensation at “half the rate the rest of us pay on our employment income,” resulting in $610 million in additional annual savings.

The AFB also sets out to tackle another tax loophole — the capital gains deduction, which allows individuals and corporations to pay half the regular income tax rate on capital investment income, and which the CCPA says costs the federal government more than $9 billion every year.

The AFB would tax income from capital at the same rate as employment income after adjusting for inflation, but would not touch other existing capital-gains exemptions, such as for principal residences or small business.

Read: Claim the capital gains exemption

Canada’s alternative budget also looked south for inspiration on increasing government revenue.

Our top federal rate for taxable income over $138,586 is 29%. That’s below the top federal rate in the United States, where it’s nearly 40%. So, the CCPA proposes to increase the top income tax rate here to 35% on incomes over $250,000. That change would result in an estimated $3 billion in additional federal revenue.

Another $2 billion could be recouped by introducing a wealth or inheritance tax. The AFB would introduce a minimum inheritance tax of 45% on estates worth more than $5 million, much like the U.S. estate tax.

Read: Shield insurance proceeds from U.S. estate tax

The CCPA says these and other measures would save $34.5 billion for 2015-16 and lift 893,000 Canadians out of poverty. The AFB shifts the focus away from the “federal government’s continued obsession with austerity and balancing the budget.”

Macdonald says that given falling crude prices, the federal government will likely report a small deficit of about $17 million rather than the $1.6-billion surplus the federal government projected late last year.

But the AFB says that by “balancing its own books through service cuts in order to pay down its own debt,” the federal government has ignored other actors in the Canadian economy — most notably family households, which, since 2008-09, “have taken on much more stimulative debt than any level of government.” Macdonald says household debt is now equivalent to 95% of Canadian GDP.

Originally published on Advisor.ca
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I would agree with the caps on TFSAs and RRSPs if he playing fields were equalized and the public sector pensions were also capped and de-indexed. If you retirement funds are in a mutual fund in Ontario and some other provinces the MERs are subject to HST. Yet the self-employed are expected to yield more and more of their income to subsidise teachers and police officers with generous incomes and obscene pensions and benefits!

Thursday, March 26 @ 7:42 pm //////


Canadian citizens have a choice, currently. They can either save to pay for their retirement, in a variety of accounts, or they can NOT save, and rely upon the community to pay for their retirement by taxing working citizens, and also borrowing, to transfer money to non-working citizens.
The idea that the community — in effect, government — can tax and borrow enough to pay entirely for Canadian citizen’s retirement is simply ludicrous at any level.
Providing a range of accounts to facilitate Canadian citizens saving for retirement works to limit government’s involvement in massive transfer programs that cannot be funded.
The idea that two of those account types create vast tax expenditures is simply specious.
In the case of the RSP. taxes are simply postponed, and generally increased. Certainly they are not lost.
In the case of the TFSA. the income going into the account is taxed as normal, and all the expenditures coming out of the TFSA are taxed (HST etc.) as normal. The growth, or loss, within the TFSA is not taxed as growth,or loss,immediately, but is certainly taxed as expenditure once it comes out of the TFSA. Fundamentally, the growth, or loss, is not taxed twice.
The idea that the growth or loss within all Canadian TFSAs can be accurately quantified is ridiculous. Every financial institution providing TFSAs would have to accumulate gains and losses by individual account, and by growth or loss type — capital gain, dividend, or income, — and calculate a notional tax liability by individual account holder each year. That obviates the usefulness of the accounts.
The obvious conclusion is that the CCPA is simply making a political statement, clearly not an economic statement. It is attempting to cloak politics, or sidestep politics, by citing the distraction of economics.
As such the entire thesis should be treated for what it is, a political tactic.
The political disruption, destruction, and eventually domination has been writ large over the course of the 20th century, particularly in Tsarist/Leninist Russia.
One hopes the 21st century might learn from the obvious lessons of the recent past.

Tuesday, March 24 @ 8:47 am //////


The AFB is evidently an organization where the author(s) believe an alternative political Party can do a better job of managing the economy than the Harper regime. Less personal saving, more taxes, greater reliance on government for income redistribution. We have tried it, it doesn’t work!

Saturday, March 21 @ 6:09 pm //////


It looks to me that AFB’s suggestion to cap TFSA, RRSP to make the citizens to have a low living standards, struggle for living and pay more taxes in Canada. An individual’s Tax Free saving allowance in the UK is 15,000 pounds in 2014 and they have junior TFSA of 3,000 pounds for those who did not reach the age 18. Like in the UK, the TFSA allowance should not be cumulative and once redeemed, an individual cannot re-invest it and lose that allowance. This TFSA investment helps private investments and growth of the nation.

More people may be on benefits (welfare) as the minimum wage is low in Canada and there is no incentive to work and have a decent living. Australia and New Zealand have higher minimum wages and less people rely on state benefits. Health Care system in Canada is a failure although more money is spent as it is run like a corporate business and requires a closer look and streamline to benefit the needy ones. Like in Norway, a user fee to see a family physician may improve the system.

Friday, March 20 @ 7:12 pm //////

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