While Canadians like the tax-free feature of the new Tax-Free Savings Account, a survey by Mackenzie Financial shows that few are clear about the implications of death on this new plan.

Of the one in five Canadians who currently hold a TFSA, 48% said they weren’t sure whether the account would be taxable to beneficiaries on death, and 69% didn’t know if the beneficiary would require TFSA contribution room to continue tax-free growth.

“These results suggest that Canadians are setting up TFSA accounts without a complete understanding of the estate planning implications,” says Wilmot George, director, tax and estate planning at Mackenzie Financial.

“TFSA’s are generally passed to beneficiaries tax-free. To continue tax-free growth after death, contribution room would normally be required unless a spouse or common-law partner receives the asset.”

When TFSA holders were asked how they will use their account, the most common answer (36%) said they plan to leave it alone for the long-term to use for things such as retirement, or children’s education.

In another question, TFSA holders were asked what type of investments the majority of their money was invested in; 51% say they’re invested in short-term vehicles such as cash, short-term GICs, or money market mutual funds.

Other findings include:

> 44% of Canadians who don’t currently have a TFSA, say the single biggest reason stopping them from opening a TFSA is the lack of extra money to invest;

> 20% of TFSA holders aren’t sure how they will use their TFSA, and 19% expect to use it for emergencies only;

> 47% of Canadians consider the tax-free savings feature of the TFSA the most appealing. Among those currently holding TFSA accounts, that number jumps to 62%.

The Mackenzie survey results are based on a Leger Marketing national online survey. The survey was conducted from March 11 to March 15, using a random sample of 1,541 respondents from Leger Marketing’s Web panel. This method simulates a probability sample which would yield a maximum margin of error of +/- 2.5%, 19 times out of 20.

IE