Canadians still underusing TFSAs

Canadians are not taking full advantage of the savings and growth potential of TFSAs more than a decade after its inception.

The most recent TFSA statistics, which were released by the Canada Revenue Agency (CRA) in June and are from the 2020 contribution year, show that average unused contribution room among TFSA holders was $40,781.

Aaron Hector, private wealth advisor with CWB Wealth in Calgary, said many Canadians remain unaware that they can hold the same types of investments in their TFSA as their RRSPs. These include stocks, bonds, mutual funds and ETFs.

If the TFSA had “investment” instead of “savings” in its name, “it would open some people’s eyes up to possibilities of [owning] more than just a high-interest savings account or a GIC” in their TFSA, Hector said.

People who had TFSAs held an average fair market value (FMV) of $26,614 across all their accounts (if they held more than one) in 2020.

In fact, Canadians’ unused TFSA contribution room exceeded the FMV of their plans at all income levels, except the highest. TFSA holders who earned between $150,000 and $249,999 in 2020 held TFSAs with an average FMV of $44,870 while still having average unused contribution room of $32,293.

TFSA holders who earned $250,000 or more held TFSAs with an average FMV of $60,397 while still having average unused contribution room of $23,596.

The CRA’s statistics also show Canadians are not maximizing contributions to their plans. In 2020, only 8.9% of TFSA holders maximized contributions to their TFSAs, referring to an individual’s cumulative contribution room, not the annual dollar amount.

Hector said he’ll sometimes recommend clients sell company shares they receive as part of their compensation and use the proceeds to make contributions to their TFSA to take advantage of any unused room.

“[The company shares] are all non-registered [assets], and if they’re paying [out] dividends, then [the client] is paying tax on those dividends they’re receiving,” Hector said.

While the shares could be transferred to the TFSA in-kind, Hector believes many clients would be better served by selling them, contributing the cash to their TFSA and investing in something else: “I think it’s unwise to have all your eggs in one basket.”

Other key TFSA statistics

• The total FMV of all property held in TFSAs as of the 2020 contribution year was $428.3 billion.
• TFSA holders contributed $85.6 billion into their TFSA that year, while withdrawing $39.1 billion.
• There were 16.1 million TFSA holders who had 24.3 million accounts (individuals can open multiple TFSAs, but their total contribution room for the plan remains the same) in 2020.
• 3.7 million TFSAs were opened that year and 1.7 million closed.

Rudy Mezzetta

Rudy is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on tax, estate planning, industry news and more since 2005. Reach him at rudy@newcom.ca.