Why arent Canadians taking advantage of tax free savings
RBC poll finds lack of funds and knowledge listed as key
TORONTO, October 27, 2009 — A majority of Canadians
(71 per cent) are aware of the Tax Free Savings Account (TFSA),
although three-quarters (76 per cent) have not yet opened
a TFSA, according to the RBC Financial Priorities Poll released
The primary reasons why Canadians say they have not opened
a TFSA are that they don't have the money to invest (51 per
cent) or they don't fully understand how a TFSA works (22
per cent). Four-in-ten (41 per cent) Canadians who have heard
of TFSAs said they want to know more about them.
"Talking to a financial advisor can help you understand
the benefits of a TFSA, find the money to invest and get the
right advice about investment options that are the best fit
for you and your financial goals," said Lee Anne Davies,
head, Retirement Strategies, RBC.
For those Canadians who have opened a TFSA, the top three
reasons are emergency savings (36 per cent); sheltering savings
from tax (31 per cent); and long-term savings for retirement
(30 per cent).
While some Canadians may be preparing for a rainy day, the
survey found that most Canadians are not taking full advantage
of TFSAs to help them achieve their financial goals. The survey
found that only 44 per cent of Canadians who have opened a
TFSA have made the maximum contribution of $5,000 and one-in-three
(33 per cent) contributed $1,000 or less. Overall, the average
contribution is $2,998. As well, TFSA holdings are quite conservative,
with the top three investments being savings accounts (33
per cent), cash (20 per cent) and GICs (18 per cent).
"Many Canadians are missing out on the chance for tax
free growth and peace of mind that a TFSA can provide,"
added Davies. "Some investors have opted to move their
existing savings to a TFSA to benefit from tax sheltering
— flexibility that will help achieve both short-and long-term
Because TFSA's are sheltered from tax, the savings can add
up faster. The chart below demonstrates how $5,000, contributed
annually, earning 6 per cent interest per year can grow within
a TFSA compared to a non-registered investment.
||Outside of a TFSA
|Assumes tax rate of 32 per cent outside
of TFSA, with interest income taxed annually. All contributions
made at beginning of the year. Annual compound rate of
return 6 per cent. For illustration only and not indicative
of future returns. Actual tax rates and rates of return
Quick Facts about the TFSA
Contributions: The 2009 contribution limit is $5,000.
This annual limit will rise along with inflation in future
years, in $500 increments. In addition, you can carry forward
unused contribution room indefinitely. The federal government
will report your TFSA contribution room to you annually.
Eligibility: Any Canadian resident age 18 or older
with a Social Insurance Number can open a Tax-Free Savings
Income requirement: You are not required to have earned
income to contribute to a Tax-Free Savings Account.
Tax benefits: There is no tax deduction for contributing
to a TFSA. However, the returns your investments generate
(interest, dividends or capital gains) are not taxable (except
for any foreign tax on foreign investments). In addition,
your withdrawals are tax-free.
Withdrawals: You can withdraw money from your account
at any time, (depending on what you invested in). At RBC,
we will not charge you a TFSA withdrawal fee. In addition,
you can re-contribute the amounts you withdrew anytime after
the calendar year of withdrawal.
Investment options: You can invest in savings, GICs,
mutual funds, stocks and bonds.
About the RBC Financial Priorities Poll
The RBC Financial Priorities Poll was conducted by Ipsos-Reid
from September 10 to 17, 2009. The online survey of 1,231
Canadians was conducted via the Ipsos I-Say Online Panel,
Ipsos Reid's national online panel. The results of this poll
are based on a sample where quota sampling and weighting are
employed to balance demographics and ensure that the sample's
composition reflects that of the actual Canadian population
according to Census data. With a representative sample of
this size, the results are considered accurate to within ±2.8
percentage points, 19 times out of 20.
Your Future by Design® is RBC's distinctive approach
to help clients identify, plan, and realize their goals for
retirement. With the guidance of RBC financial planners and
investment and retirement planners, Your Future by Design
helps clients create a blueprint for a successful lifestyle
and financial plan for retirement based on what is truly important
to them in key areas in life, including family, health, home,
lifestyle, work/business, mind and spirit, and legacy. To
find out more about how RBC can help build a blueprint for
the future, visit www.rbc.com/yourfuture
or call 1-866-335-4055.
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Suzanne Willers, RBC, 416-974-2727
Matt Gierasimczuk, Media Relations, 416-974-2124