New data from CRA shows Canadians have nearly 300 billion reasons to love their TFSAs

National Post


This year, Canadians will have the option to add up to $6,000 to their tax-free savings accounts, bringing the cumulative contribution limit to $75,500 for someone who has been a resident of Canada and at least 18 years old since their inception in 2009.

The extent to which Canadians have embraced the TFSA in that time has been truly remarkable. Indeed, new statistics released by the Canada Revenue Agency last week show that as of Dec. 31, 2018, there were 20,779,510 TFSAs in Canada, held by 14,691,280 unique TFSA holders with a total fair market value of $298 billion. That means that the average TFSA holder had TFSAs with a fair market value of nearly $20,300 at the end of 2018.

Of the nearly 15 million Canadians with a TFSA, 8.5 million of them contributed to their TFSAs in 2018 and, of those who did contribute, 1.4 million contributed their maximum entitled amount. Interestingly, the average contribution per person, at $7,811, was significantly higher than the 2018 TFSA dollar limit of $5,550, meaning that many Canadians were using up prior years’ cumulative TFSA room to make larger, catch-up contributions in 2018.

The data goes deeper and sheds some light on both the contribution and withdrawal patterns of Canadians. For example, in 2018, the average number of TFSA contributions per individual was 15, which may indicate that many Canadians are contributing on a regular basis, perhaps through automatic monthly payroll deduction. Canadians also seem to be tapping into their TFSAs to access funds as needed, with 4.5 million taxpayers withdrawing nearly $35 billion in 2018, with average withdrawals totalling $7,689 per person. This is not overly surprising since the TFSA, while often used for retirement savings, is truly an all-purpose investment account that can be used for anything from a down payment on a home, to the purchase of a new car, to a post-COVID tropical vacation!

The good news about withdrawals, of course, is that they are tax-free and the amount withdrawn is added to your cumulative TFSA contribution room beginning the following calendar year. The stats showed that the average unused TFSA cumulative contribution room as of Dec. 31, 2018 was $34,165.

But perhaps the most interesting information released by the CRA was the demographic breakdown, by age and income, of who uses TFSAs. About one third of all TFSA holders are under the age of 40, with 42 per cent between the ages of 40 and 65 and the balance, about 25 per cent, held by Canadians over 65. To me, this indicates that younger Canadians, who may just be starting out their jobs and have limited disposable income, have truly embraced the TFSA as a way to save for retirement.

The stats released also show a breakdown of TFSA holders by income level, with 52 per cent of TFSA holders reporting a total income of under $50,000 on their 2018 return. The average TFSA balance at Dec. 31, 2018 of $20,300 was pretty consistent across all income brackets from $20,000 up to $90,000. For those with total income above $90,000 and up to $250,000, the average balance was slightly larger at about $27,000. For the highest income-earners, or those Canadians with an income of over $250,000, the average TFSA balance was just shy of $43,000.

Of course, with all this talk of TFSAs, let’s not forget that we are in the middle of RRSP season, as you only have until March 1, 2021 to contribute to your RRSP to be entitled to claim a deduction on your 2020 return. For 2021, the new RRSP dollar limit is $27,830 or 18 per cent of your 2020 earned income, whichever is lower, less any pension adjustment from your employer. (You have until March 1, 2022 to make this year’s contribution.)

When asked whether someone should contribute to an RRSP or TFSA, my standard reply is: “Both!” But for most people, that’s simply not an option due to a lack of funds, so it’s important to point out a few critical differences between the two savings plans.

First, with a TFSA, there’s no maximum age limit to contribute, unlike an RRSP, to which you can only contribute up to, and including, the year in which you turn 71 (unless you have a younger spouse or partner). This makes the TFSA an ideal vehicle for seniors over the age of 71 to continue to shelter their investment income or even to contribute the after-tax value of their mandatory annual RRIF withdrawals. The newly-released stats show that nearly 19 per cent of all TFSA account holders in 2018 were age 70 or older.

The second consideration is that to contribute to a TFSA, you needn’t have any “earned income,” which is typically employment income, self-employment or professional income, or rental income. For Canadians who no longer have earned income and who are living off of investment income, pension income or RRSP/RRIF withdrawals, TFSA contributions make good sense.

Finally, keep in mind that TFSAs are far more flexible than RRSPs as funds can be withdrawn, tax-free, at any time, for any reason, and the withdrawn amount can be recontributed beginning in the following calendar year. With an RRSP, withdrawals that are not made under the Home Buyers Plan or Lifetime Learning Plan are taxable, and funds can’t be recontributed without having RRSP contribution room.

Taking these factors into consideration, if asked to recommend a TFSA or RRSP, it often comes down to your tax bracket, both today, and in the future. As I’ve written many times before, if you expect to be in a higher tax bracket when you withdraw funds than you are when you make contributions (including taking into account the impact of the loss of income-tested government benefits and credits, such as Old Age Security and the age credit), TFSAs beat RRSPs for long-term savings. But for many of us, who will likely be in a lower tax bracket when we retire, RRSPs continue to be the way to go if you don’t have enough funds to maximize contributions to both plans.