One-half of Canadians (48 per cent) now report having a tax-free savings account (TFSA) — up 23 per cent from 2012.
However, many Canadians remain unfamiliar with specific aspects of the program, found a survey released by BMO Bank of Montreal.
The survey revealed:
•TFSA holders plan to contribute an average of $3,625 this year.
•Men and women are equally likely to have a TFSA, while those aged 65 or older are more likely to have an account than other age groups (53 per cent).
•TFSA adoption is strongest in Western Canada (Alberta at 55 per cent, the Prairies and British Columbia at 53 per cent each) and weakest in Atlantic Canada (34 per cent).
•Not having to pay taxes on withdrawals (33 per cent) and the ability to withdraw funds at any time (27 per cent) are seen as the key benefits of the TFSA.
•TFSAs are being used most often as a vehicle to save for retirement (47 per cent) and as an emergency source of funds (43 per cent).
•Cash is the most common instrument being held in TFSAs (57 per cent), followed by mutual funds (25 per cent), Guaranteed Investment Certificates (GICs) (23 per cent), stocks (14 per cent) and Exchange Traded Funds (ETFs) (five per cent).
"When first introduced in the 2008 federal budget, the TFSA was described as a 'tax policy gem' that was good news for the country. Given the impressive adoption rate, it's clear that Canadians tend to agree," said Christine Canning, head of everyday banking products at BMO Bank of Montreal.
Canadians still unfamiliar with TFSA specifics
While 68 per cent of the 1,023 Canadians surveyed claim to be knowledgeable about TFSAs — up from 60 per cent in 2012 — many are still not familiar with specific aspects of the account:
•Just 19 per cent know that the new contribution limit is $5,500 (up from $5,000).
•Only 11 per cent correctly identified all six types of investments that are eligible to be held within a TFSA.
•Around one-half of Canadians stated they know when TFSA contributions are taxed (52 per cent) and how much you are allowed to re-contribute after making a withdrawal (47 per cent).
•One in ten (10 per cent) of TFSA holders have over-contributed since opening an account.
"Being unaware of some of the specific rules around the TFSA can potentially lead to complications down the road," said Canning. "For instance, those who over-contribute will be required to pay a tax of one per cent on the amount in excess of the limit. This can really add up, so it's essential that Canadians stay up to date on the specifics of the account."