Tory leader touts tax prepaid savings plans

(May 14, 2004) Conservative Party leader Stephen Harper says a Tory government would introduce tax prepaid savings plans (TPSPs) as a supplement to the RRSP program. Harper made the pledge today in a speech at the C.D. Howe Institute in Toronto.

Unlike RRSPs, contributions to TPSPs are not tax deductible, but the investment income grows tax free and is not taxed when the plan is collapsed.

“RRSPs are a very popular savings and investment option, and with good reason,” said Harper. “But while people save on taxes when they invest in them, too often they end up paying even higher taxes when they cash them in. For low- and modest-income investors this means losing such things as OAS benefits, and this can be particularly onerous.”

Although TPSPs are often promoted as benefiting low-income earners, they are also a useful investment tool for those who have maxed out their RRSP contribution room, said tax researcher Richard Shillington in the January 2004 edition of Advisor’s Edge magazine.

Under Harper’s plan, which he is calling a Registered Lifetime Savings Plan (RLSP), annual contributions would be limited to $5,000.

“The RLSP program would have no immediate fiscal impact, but would tend to reduce tax revenue and increase pension saving in the future,” Harper says. “Loss of revenue will be offset by the lower cost of the RRSP program as Canadians adjust their savings mix.”

The Liberal government raised the notion of TPSPs in the 2003 budget, but hasn’t taken the proposal much further, saying in this year’s budget only that the proposal needs “further study.”

Harper says Prime Minister Paul Martin has shown little sympathy for Canadians trying to save for retirement, noting that as finance minister in 1995, Martin reduced RRSP annual contribution limits. Those limits have since been raised, with Ottawa committing to a gradual increase ($18,000 by 2006) in the 2003 budget. A number of industry groups — including Advocis, IFIC and the IDA — say limits should be raised to $27,000.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com