The new Tax-Free Savings account (TFSA) will help lower-income Canadians save for the future, said the Investment Funds Institute of Canada (IFIC), in response to the federal government initiative announced today.

“IFIC has been suggesting a very similar program to the government over the past two years,” said Joanne De Laurentiis, president and CEO at IFIC. “The mutual fund industry has long taken the stand that the federal government should help Canadians save for themselves and be less reliant on government programs in the years ahead. The TFSA takes Canadians down that road,” said De Laurentiis, in a release.

In the federal budget handed down today, Federal Finance Minister Jim Flaherty announced that starting next year, Canadians 18 and older will be able to save up to $5,000 a year in a TFSA. Contributions will not be tax deductible – as is the case with
RRSPs – but neither is the investment income, including capital gains, when the money is withdrawn. The money can be withdrawn for any purpose at any time and then be repaid without using up contribution room. Unused contribution room can be carried forward, there is no lifetime limit and contributions can be made on behalf of a spouse.

De Laurentiis says the idea works for lower and middle-income Canadians because it will not trigger clawbacks on the guaranteed income supplement or old age security.