The Center Block and the Peace Tower in Parliament Hill

Advocacy groups within the financial services sector have put forward a raft of recommendations in their 2018 pre-budget submissions to the federal government. These groups seek to address key policy issues facing Canada’s economy.

Chief among these recommendations is encouraging Canadians to save for retirement and help them meet the rising costs associated with health care, long-term care and education. Other recommendations offer ways to improve the country’s fiscal strength.

Here are some of the key recommendations:

Balance the budget. The Investment Industry Association of Canada (IIAC) is urging the government to present a plan to eliminate the deficit over the medium term and return to balance. Fiscal discipline would boost business, consumer and investor confidence, the IIAC’s submission states, as well as enable the economy to weather shocks, such as rising interest rates or geopolitical uncertainty.

(All organizations are based in Toronto unless otherwise noted.)

“We’re not expecting [the feds] necessarily to go to a zero balance budget this year,” says Ian Russell, president and CEO of the IIAC, “but they need a plan to get there.”

Improve flexibility of RRSPs and RRIFs. Investment industry groups are asking the government to give Canadians greater flexibility to boost their retirement savings via RRSPs and RRIFs. Related suggestions include greater access to monies within these plans to purchase products, such as annuities or long-term care (LTC) insurance, to protect planholders against longevity or health risks, respectively.

The IIAC also recommends that eligibility to contribute to an RRSP be extended beyond age 71 and the mandatory minimum withdrawals from a RRIF be eliminated. According to the IIAC, seniors who face longevity risk would have greater opportunities to defer income taxes if these changes were made.

The Investment Funds Institute of Canada (IFIC) asks the government to move away from an annual tax-deferral limit for retirement savings, currently 18%, and toward an inflation-indexed lifetime tax-deferred savings limit that would allow savers to achieve pension wealth in line with that of individuals who have access to a defined-benefit pension plan.

The Canadian Life and Health Insurance Association Inc. (CLHIA) recommends the feds give RRSP and RRIF accountholders more flexibility to use monies in those plans to purchase life annuities, which would provide protection against longevity risk.

The Ottawa-based Conference for Advanced Life Underwriting (CALU) recommends Canadians be permitted to withdraw $2,000 a year, to a lifetime limit of $24,000, from an RRSP or RRIF on a tax-free basis if used to purchase LTC insurance. This program could be structured in a similar way as the Home Buyers’ Plan or the Lifelong Learning Plan.

Boost the TFSA’s contribution limit. Both IFIC and the IIAC recommend that Ottawa phase in an increase in the annual TFSA contribution limit to $10,000. IFIC also suggests that the government change the formula for determining annual increases to the TFSA contribution limit to take into account not just the consumer price index, but also current interest rates and average investment returns.

The CLHIA recommends the TFSA rules be amended to allow Canadians who are nearing retirement to hold life annuities within their TFSAs.

Help disabled canadians. To encourage more eligible individuals to open a registered disability savings plan (RDSP), IFIC recommends the feds increase awareness of the RDSP and reduce the complexity involved in opening and managing the savings vehicle.

IFIC also recommends amending RDSP rules to expand the list of qualified family members who can act as accountholders, improve communication with accountholders regarding eligibility expiration dates and remove the limit of one account per beneficiary.

IFIC also recommends extending creditor protection, in cases of bankruptcy, to all contributions made to an RDSP. Currently, only government contributions have protection against creditors.

Boost education savings. IFIC recommends the feds offer greater incentives for Canadians to open and contribute toward registered education savings plans (RESPs).

IFIC suggests RESP rules be amended to eliminate the annual maximum of $500 for the Canada Education Savings Grant (CESG) in favour of allowing contributions made at any time before a child turns 18, up to the lifetime limit of $50,000, to receive matching CESG grants. Furthermore, IFIC recommends the lifetime maximum CESG grants be raised to $9,000 from $7,200.

Reconsider proposed changes to the taxation of private corporations. Financial services organizations were pleased that the feds chose to backtrack on several elements of the proposed changes to the taxation of private corporations introduced in July 2017.

However, concerns remain about the negative effects of the changes with which the government intends to proceed – namely, the taxation of passive investment income held in a corporation and “income sprinkling.”

“The revised system still is very complex, increasing small-business compliance costs and possibly requiring valuation and other professional expenses,” says Guy Legault, president of CALU, referring to revisions to the taxation of splitting income that came into effect on Jan. 1.

CALU and other groups are asking the government to heed the Senate Finance Committee’s recommendation to withdraw proposed changes to the taxation of private corporations in their entirety. Opponents of the proposals believe they are unwieldy and would result in unintended consequences for small- businesses and entrepreneurs.

Encourage capital investment. To boost investment in new enterprises, the IIAC recommends the government permit capital gains earned on the sale of assets to be deferred – as long as the proceeds are reinvested in the shares of small public and private businesses.