Canadians still foggy on TFSAs

Three years after its inception, Canadians continue to find the Tax-Free Savings Account a bit of a mystery, according to a BMO survey.

Despite the fact that 44% of Canadians currently have a TFSA, more than one-third (37%) have no idea what investments are eligible, barely more than half (52%) considered cash to be an eligible option, only 32% knew they could hold mutual funds and 33% knew GICs can be included.

“The numbers show that while this investment tool is continuing to gain traction among Canadians, we are still seeing some confusion regarding how to make the most of out a TFSA plan,” said David Heatherly, vice president, BMO Bank of Montreal. “A TFSA offers a variety of ways to tax shelter investments within a number of different investment vehicles, making TFSAs a suitable and sensible option for just about any type of investor.”

Canadians are contributing an average of $3,700 per year to their TFSAs, leaving valuable contribution room on the table, noted the study.

“Tax implications should be a key consideration for any investment decision,” said Heatherly. “The main point of differentiation between TFSAs and other investment products is that the earnings are tax-free and allow for significant tax sheltered wealth and growth opportunities.”

A lack of awareness regarding the regulations around TFSA contributions and withdrawals has been a point of concern since TFSAs were introduced three years ago.

“Essentially, once you reach your contribution limit for the year, you cannot reinvest or return money that has been withdrawn from your TFSA in the same year,” said Heatherly. “However, that withdrawal amount gets added to the contribution room available in the year following. While that has caused some confusion, this is a well-designed investment product with a lot of financial upside, and Canadian investors appear to be doing their homework.”

Other key findings of the survey show British Columbians are more likely to say they are knowledgeable about TFSAs than those in Quebec (70% vs. 53% respectively).

Men are more likely to say they are very knowledgeable about TFSAs compared to women (19% vs.12%) and those aged 55+ are the most likely to have a TFSA than those under 55 (54% vs. 39% respectively). The same is true about those without children (48% vs. 36%) and those with a university education (54%).

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.