Jack M. Mintz: What the TFSA limit increase really means for future governments

Without doubt, the most important milestone in Finance Minister Joe Oliver’s 2015 budget is that the federal government will finally be in the black after facing deficits ever since the 2008-09 Great Recession. Not many advanced countries have achieved this badge of fiscal prudence, which will have untold benefits for the Canadian economy as a place to invest.

There is, however, another important aspect to this budget that is a significant marker: the increase in the Tax-Free Saving Account limit from $5,500 to $10,000 for each taxpayer. This will not only provide working Canadians the opportunity to accumulate savings without facing a tax penalty but also many seniors who can continue to invest their income in a tax-sheltered saving plan, including taxed funds withdrawn from the Registered Retirement Income Funds. For a couple, this means up to $20,000 a year can be invested without taxes on their investment income in addition to the tax-exempt savings in housing equity and registered pension and retirement saving plans.

Why is this so important? Over time, many low and middle-income class Canadians will be able to avoid paying personal taxes on their investment returns. Like consumers, savers will be taxed on their earnings once without having to pay another tax on their invested earnings to support retirement income. In tax policy terms, the double tax on savings will be removed for these Canadians, converting the personal tax into the so-called expenditure tax.