Time to get political on My Own Advisor. Who doesn’t like a little bit of controversy? This is hopefully a healthy debate, so let’s get into it. Our federal election is coming up and I think it’s time to make these financial issues election issues.
- Keep the Tax Free Savings Account (TFSA) contribution limit at $10,000
You might recall the Conservatives made good on their promise, they increased the annual TFSA contribution limit after the budget was balanced to $10,000 per account holder earlier this year. While this might seem only great news for wealthy Canadians looking to shelter more tax I also think it’s great for all Canadians regardless of income levels and ages. Increasing the TFSA contribution limit will allow Canadian investors to shelter more dividends, capital appreciation and interest income from taxation – providing a greater incentive for Canadians to save, invest and stay invested using this account. A higher TFSA limit might mean young adults don’t need to use Registered Retirement Savings Plans (RRSPs) altogether. Using the TFSA some Canadians may be able to curb “the tax headaches” associated with RRSP or RRIF withdrawals. Savings inside a TFSA can be withdrawn and these withdrawals do not affect the eligibility requirements associated with Old Age Security or Guaranteed Income Supplement programs. Lastly, it could eventually make the RRSP-Home Buyers’ Plan obsolete – removing more bureaucracy – which means saving us taxpayers money.
Recent interviews however with Liberal leader Justin Trudeau and NDP leader Tom Mulcair confirmed both leaders, if elected as prime minister, would roll back the annual TFSA contribution limit to $5,500 per year.
My advice to Justin and Tom, don’t do it. If you feel you must, you might not get my vote.
- Abolish the Registered Retirement Income Fund (RRIF) minimum withdrawal requirements
You might already know you need to collapse your Registered Retirement Savings Plan (RRSP) in the year you turn age 71. Moving RRSP assets into a RRIF is one popular option available to you. An RRIF is like an RRSP in that it is a vehicle for deferring tax on investments but the individual is not allowed to make contributions; starting the year after the RRIF is established a minimum amount must be withdrawn each year. If a person starts to withdraw money from the RRIF before age 71, the minimum annual withdrawal is calculated every year using a prescribed formula. If you’re confused, don’t be. Here is my point: abolish the RRIF minimums.
People are living longer, they should be able to manage their money as they please. This one popular argument in favour of removing RRIF minimum withdrawals I agree with. It also simplifies the tax code, so there is less waste in the tax system.
My advice to Stephen, Justin, Tom and Elizabeth, abolish the RRIF minimum withdrawal requirements and rid Canadian taxpayers of some ridiculous bureaucracy.
- Change the Old Age Security (OAS) program
Most Canadians are aware that Old Age Security (OAS) is a pension-like monthly payment available to most Canadians 65 years of age and older who meet residence requirements. This means employment history is not a factor. OAS payments (unlike Canada Pension Plan payments) come from general tax revenues. I’d like to see the OAS program changed from this key perspective, as controversial as it might be:
Stop OAS payments entirely to wealthy seniors over the existing “clawback” threshold.
Yes, I just wrote that…
The government imposes a “clawback” on your OAS payments if your net income for the year, in 2015, is over $72,809. The amount of the clawback is equal to your OAS payments or 15% of the amount by which your net income exceeds the threshold, whichever is less. The OAS benefit will be eliminated when your net income is just over $117,000. In my opinion, no senior making over $70,000 really needs taxpayer funded income security. To save money from general tax revenues I would suggest eliminating OAS payments entirely to individuals over the existing clawback threshold. We can use the money saved to manage our growing healthcare crisis. Going forward if a person’s net income exceeds the threshold (which I recommend is indexed to inflation) they would be ineligible for OAS.
My advice to Stephen, Justin, Tom and Elizabeth, change the OAS program and ensure these payments only go to those in financial need. Let the comments flow people…
“Simplicity is the ultimate sophistication.”
― Leonardo da Vinci
In summary, time to keep it simple government. Keep the $10,000 annual TFSA contribution room for everyone, abolish unnecessary RRIF rules to simplify the tax code and change the OAS program for those that really need it. Time to make these personal financial issues election issues in 2015.
What do you think?