When it comes to the basics of Tax-Free Savings Accounts, Canadians aren’t yet making the grade, according to a recent test conducted for Makenzie Investments.

The test, conducted by Leger Marketing, showed a continuing need for more education about the basics of the program.

Of five questions asked on the test, 44% of Canadians answered three or more correctly; 8% answered all five questions correctly and 28% did not get any of the questions correct.

“When the government gives you a tax break, you’ve got to take it. A number of Canadians have already taken advantage of the TFSA, but many still need to learn about this new vehicle for building wealth,” says Wilmot George, director, tax and estate planning for Mackenzie Investments.

“It’s encouraging to see Canadians turning their attention to the TFSA, but when it comes to learning the basics, there’s still some work to be done – for example, only 41% know that a broad range of investment options are available for TFSAs.”
The survey of asked the following five True or False questions. The correct answers, and the percentage of those who answered correctly, are shown in brackets.

1. Like an RRSP, contributions to a TFSA are tax-deductible. (False; 43% Correct)

2. The TFSA contribution limit is currently $5,000 per year. If you don’t contribute the full $5,000 in a year, the remaining contribution room is lost. (False; 36% Correct)

3. TFSA contribution room does not depend on earned income. Regardless of income level, all Canadians age 18 or older will receive $5,000 of TFSA contribution room each year. (True; 63% Correct)

4. A broad range of investment options are available within a TFSA including stocks, bonds and mutual funds. (True; 41% Correct)

5. An individual can own multiple Tax-Free Savings Accounts. (True; 22% Correct)

The test also found that young people need the most education — only 3% of 18-24 year olds answered all five questions correctly.

Along with the test, Mackenzie Investments asked general questions about Canadian attitudes towards the TFSA. The results showed that the majority (68%) of Canadians haven’t opened a TFSA. When asked why more Canadians haven’t taken advantage of the new savings vehicle, 59% of respondents said that people don’t have enough money to invest followed by 42% saying it’s because Canadians don’t know enough about them.

The survey also revealed that, given the change in economic climate, 39% of TFSA holders are planning to adjust their TFSA investments to benefit from more favourable market conditions.

“Canadians have a great opportunity to grow their savings free of income tax through a variety of investments in a TFSA, not just lower interest savings accounts,” George says.

“Mutual funds can provide various levels of growth while managing risk through diversification. A financial advisor can help investors choose investments that are best suited to them.”

The survey results are based on a Leger Marketing national online survey with a representative sample of 1,506 Canadians (18 years and older). The survey was conducted between December 21 and 23, 2009.

IE