Despite near doubling of TFSA annual dollar limit, most
Canadians are unaware of the basic investment options
TORONTO, July 23, 2015 /CNW/ - A recent poll by
CIBC (TSX: CM) (NYSE: CM) finds that half (50 per
cent) of Canadians are unsure what they can hold in a Tax-Free
Savings Account (TFSA).
Despite their lack of knowledge, the majority (80 per
cent) of Canadians have never talked to a financial advisor on
how to make the most of their TFSA, with half admitting they need
advice.
"With TFSAs becoming a larger part of investment portfolios,
it's certainly eye-opening to see how many Canadians are unaware of
how to use them to full effect," says David
Scandiffio, President, CIBC Asset Management. "It seems most
people still view TFSAs as rainy day funds rather than vehicles to
help them achieve their longer-term financial goals, such as
building up your retirement nest egg or saving for a down payment
on a house."
With the annual TFSA dollar limit nearly doubling to
$10,000, TFSA balances are expected
to increase significantly over time, becoming a more and more
substantial part of investment portfolios. That means longer-term
investment options that produce higher returns, such as stocks and
mutual funds, should be considered rather than only short-term or
low-risk savings vehicles, such as cash or GICs, says Mr.
Scandiffio.
Yet, the poll findings show that the majority of Canadians still
view TFSAs as largely savings accounts, with only a small
percentage of Canadians able to accurately identify mutual funds
(29 per cent), GICs (28 per cent), bonds (23 per
cent) or stocks (22 per cent) as being investment
options for TFSAs.
"You don't need to take on undue risk with your TFSA money, but
it's important to recognize that the TFSA can be a powerful
retirement planning tool, especially given the increased annual
dollar limit, its tax efficiency and the flexibility to include
investments with higher-return potential," he says. "The first step
is to educate yourself and sit down with an expert to understand
how a TFSA fits into your overall financial plan."
Canadians confused over TFSA rules
The poll also finds that Canadians are confused about TFSA
contribution rules, with 38 per cent saying they don't know
what happens to unused TFSA contribution room and another 13 per
cent who think the unused contribution room is lost after the
current tax year, when in fact it is carried forward and
accumulates over the years.
"Investors stand to leave a lot of money on the table if they
don't fully understand the investment options and tax
considerations related to TFSAs," says Jamie Golombek, Managing Director, Tax and
Estate Planning, CIBC Wealth Advisory Services. "There are tax
benefits to maximizing TFSA contributions."
For example, if you were at least 18 and a resident in
Canada since 2009, but have never
contributed to a TFSA, your cumulative contribution limit now
stands at $41,000 - and will rise by
$10,000 annually.
"It often makes sense for investors to catch up on any
outstanding contribution room from prior years because it can have
a meaningful impact on your long-term savings and play a key role
in helping you to reach your financial goals," says Mr.
Golombek.
Key Poll Findings:
Percentage of Canadians who said the following statements
were true based on their current understanding of
TFSAs:
|
All |
18-34 |
35-54 |
55+ |
I can hold cash in an interest-bearing savings
account in a TFSA |
40% |
37% |
38% |
45% |
I can hold mutual funds in a TFSA |
29% |
27% |
28% |
32% |
I can hold shares of companies listed on a public
stock exchange in a TFSA |
22% |
21% |
18% |
26% |
I can hold guaranteed investment certificates
(GICs) in a TFSA |
28% |
24% |
28% |
33% |
I can hold bonds in a TFSA |
23% |
21% |
22% |
27% |
I'm not sure what I can hold in a TFSA |
50% |
52% |
53% |
46% |
Canadians on what happens when you don't contribute the
maximum amount to your TFSA:
|
All |
18-34 |
35-54 |
55+ |
Unused contribution room is carried forward and
accumulates in future years |
49% |
44% |
49% |
55% |
Unused contribution room is lost after that tax
year |
13% |
17% |
12% |
10% |
I don't know |
38% |
39% |
39% |
35% |
Canadians on whether they have consulted a financial expert
about how to use the TFSA to its maximum benefit:
|
All |
18-34 |
35-54 |
55+ |
Yes |
20% |
13% |
18% |
29% |
No, I don't need help |
40% |
37% |
40% |
43% |
No, but I should consult an expert |
40% |
50% |
43% |
28% |
Methodology
On April 29 and May 1, 2015, an online survey was conducted among
3,011 randomly selected Canadian adults who are Angus Reid Forum
panelists. The margin of error - which measures sampling
variability - is +/- 1.79 per cent, 19 times out of 20. The results
have been statistically weighted according to education, age,
gender and region (and in Quebec
language) Census data to ensure a sample representative of the
entire adult population of Canada.
Discrepancies in or between totals are due to rounding.
About CIBC
CIBC is a leading Canadian-based global financial institution
with 11 million personal banking and business clients. Through our
three major business units - Retail and Business Banking, Wealth
Management and Wholesale Banking - CIBC offers a full range of
products and services through its comprehensive electronic banking
network, branches and offices across Canada with offices in the United States and around the world. You
can find other news releases and information about CIBC on our
corporate website at www.cibc.com/ca/media-centre/.
SOURCE Canadian Imperial Bank of Commerce