Dear Minister of Finance,
While I deeply appreciate you bringing innovation to the entirely boring landscape of Canadian investing with the introduction of the Tax Free Savings Accounts (TFSA), I have to say you screwed up with the name.
By using the word ‘savings’ in the title of these accounts you have firmly linked them forever to basic savings accounts. This has resulted with the majority of Canadian’s only investing in a high interest savings accounts which save them almost no tax. For example, $5000 at 1.5% interest only produces $75 a year in interest. At a 40% marginal tax rate, that person has only saved $30 in tax over the ENTIRE year or $2.5o/month. It’s so tragic of a waste of a tax shelter it makes me almost weep.
While most people would assume this would be a sorry accident I have to almost wonder if the name was intentional in order to ‘save’ the reduction in tax revenue to the government of Canada. While this is a cynical thought, I admit, I have to believe instead that you were trying to do the right thing and this is but a tragic mistake. So before it is too late, might I request you rename the accounts: Tax Free Investing Accounts(TFIA). Save the people for their own simple conclusions and make this innovation of yours truly great.
After all, won’t it be wonderful to educate the public simply with an example that if you own a dividend paying stock in their TFIA they can have stream of tax free cash for as long as they own it. Then even when they sell they would then pay no capital gains tax. So that others may have the joy of knowing they have saved nearly $1500 in tax on a $7500 investment like me.
Thank you for your time and consideration to this modest proposal.