Conservative Party of Canada leader Pierre Poilievre at a campaign rally in Quebec City on March 26.Mathieu Belanger/Reuters
Conservative Leader Pierre Poilievre says he will increase the annual limit on contributions to the tax-free savings account, but only for funds invested in Canadian companies.
On Thursday, he said a Conservative government would introduce an annual top-up of $5,000 for TFSA contributions in addition to the regular annual limit, which currently sits at $7,000. But to take advantage of the extra savings room, Canadians would have to invest the additional funds exclusively in Canada.
“It will bring home billions of dollars of investments and jobs to Canada while bringing home savings for you,” Mr. Poilievre said in a YouTube video announcing the measure.
But some financial advisers and economists doubt whether more room to save in a TFSA would help average Canadians or meaningfully boost domestic investment. They also raised concerns about the measure’s possible administrative burden.
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The TFSA, introduced under then prime minister Stephen Harper in 2009, has become an extremely popular savings vehicle for Canadians.
Investment returns on funds held inside a TFSA are generally exempt from tax, as are withdrawals from the account. The ability to take money out tax-free makes it a versatile account that can be used for saving for retirement, a home down payment, holding emergency funds and much more.
From a personal finance point of view, being able to invest an additional $5,000 annually in a TFSA would be “pretty sweet” for wealthy Canadians who regularly max out their annual contribution limit, said Benjamin Felix, chief investment officer and portfolio manager at PWL Capital.
But the measure wouldn’t help lower-income Canadians, including many young people, who already can’t save enough to fill up their TFSA accounts under the current limit, Mr. Felix said.
For example, of 17.8 million Canadians who had a TFSA in 2022, only 1.5 million maximized their contributions that year, according to data from the Canada Revenue Agency.
The average fair market value of investments held by Canadians in TFSAs was less than $30,000 per individual, the data also shows. By contrast, someone saving the maximum allowed annually in a TFSA since 2009 would have $102,000 in contributions alone.
Still, for people able to afford $12,000 a year in contributions, the requirement to invest the extra $5,000 in domestic companies wouldn’t force Canadians to tilt their holdings toward their home country more than most retail investors already do, he said.
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Canadians already invest 50 per cent of their equity portfolios in domestic companies, even if Canada accounts for less than 3 per cent of the global equity market, according to data from investment giant Vanguard.
The numbers suggest many investors could easily maintain the level of home-country bias they already have by investing all or most of their contributions under the $7,000 cap outside Canada, something that can be easily achieved for stocks through low-cost exchange-traded funds (ETFs), he said.
But tracking which investments satisfy the Canada-only requirement of the $5,000 top-up could be complicated, says Aravind Sithamparapillai, an associate at Ironwood Wealth Management Group.
“I would probably open a separate TFSA for this specifically,” he said in a post on social-media platform LinkedIn.
From an economics perspective, it would be difficult for Ottawa to ensure that extra TFSA dollars invested in domestic companies stay in Canada, said Brant Abbott, a professor of economics at Queen’s University.
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A simple way for the federal government to delineate which investments qualify for the top-up would be to use the criteria that already exist to determine eligibility for the tax credit on dividend income from Canadian corporations, Prof. Abbott said. But it’s not clear what would prevent domestic companies from investing the funds abroad, he said.
“If I buy equity in a Canadian bank that qualifies for the dividend tax credit, nothing stops them from taking my investment dollars and buying assets that are foreign, buying U.S. Treasuries, for example,” he said.
Policing where the money goes could be administratively complex, he warned.
Instead, Ottawa could expand business tax credits for investing in Canada to boost capital flowing to domestic companies and operations, he said. Such tax breaks would also make it more appealing for foreign companies to invest in Canada, he said.
Canadians can hold their TFSA savings in cash or investments such as guaranteed investment certificates, stocks, bonds, mutual funds and ETFs. There is currently no requirement that TFSA funds be invested in Canadian companies. The contribution limit is set annually and adjusted for inflation.
