Tax-free savings accounts have been touted as the next biggest thing to RRSPs. TFSAs officially came into being on Jan. 1, and financial services institutions have been moving quickly to try to meet the demand for what they believe will be a successful new method of saving for millions of Canadians.

Much has been written about TFSAs, which can serve as anything from rainy-day funds to savings for homes or cars or top-ups for both retirement and education plans for children.

The Investment Funds Institute of Canada is one organization that has been sending letters to some provincial governments asking them to consider amending their provincial succession laws to allow for designations of beneficiaries for TFSAs in the same way they allow for such designations for RRSPs and RRIFs. Slightly less than half of the provinces allow such designations.

IFIC wants the do-not provinces to amend their definitions of the plans to allow a TFSA holder to designate a beneficiary or successor so that, on the TFSA holder’s death, TFSA proceeds can pass outside of a will to the designated beneficiary. Alternatively, provinces could amend their legislation to allow the change to be made by regulation, which would make it easier to allow beneficiary and successor designations in any new plans in future — it is much faster to add a new regulation than to change a law.

IFIC believes that all Canadians wanting to contribute to the new account will expect to be able to designate spouses or other beneficiaries in TFSA plan documentation to deal with the estate distribution of their TFSA assets as simply as they currently can for RRSPs and RRIFs.

British Columbia, Alberta, Nova Scotia and Prince Edward Island have amended their rules to allow for successor and other beneficiary designations in TFSA documentation. Manitoba has publicly committed to do so; Ontario is expected to follow suit shortly. We hope all the provinces and territories will step up to ensure that the changes to succession laws for TFSAs are completed. Equally important, all provinces and territories must agree to these changes so that all investors across Canada receive the same advantages. Although TFSAs became available Jan. 1, provinces can still make this provision retroactively.

This will be of particular importance for the self-employed, who lack employer pension plans that allow such designations, as well as for young, lower-income or new Canadians, who may be less likely to have wills. Designations within the TFSA would be a faster, cheaper, easier way to transfer an important estate asset.

The Canada Revenue Agency contemplates that TFSAs will have the same appeal as RRSPs over time. Because of the expected volume of TFSAs to be opened, the CRA gave permission to IFIC members and firms in other financial services sectors to complete the necessary paperwork and account set-up requirements before the official launch date.

Given the relatively small contribution room in TFSAs ($5,000 a year) as compared to that available in RRSPs, the mutual fund industry believes mutual funds will be one of the most popular investment choices for Canadians investing in TFSAs. Investment income earned in a TFSA will not be taxed and withdrawals from TFSAs will be tax-free. Mutual funds currently make up more than a quarter of Canadians’ financial assets; almost half of adult Canadians already own mutual funds, either inside or outside their RRSPs.

The mutual fund industry has always been in favour of helping Canadians save for their own retirements and other purposes without having to rely on governments. TFSAs are a new way to make this happen. Although there is no doubt that times are tough economically, the TFSA, probably more than any other savings plan, will provide greater flexibility to savers — whatever their needs. IE



Joanne De Laurentiis is president and CEO of the Investment Funds Institute of Canada in Toronto.