Many Canadians don't understand the rules of the tax-free savings account (TFSA), according to a survey released by ING Direct. Almost one-quarter (23 per cent) said their bank was responsible for tracking their TFSA contributions and withdrawals. Another 12 per cent think it's the responsibility of the government, while seven per cent said their advisor is responsible for keeping track of the transactions.
The same survey of 1,668 people also found they have a vague idea (37 per cent) or don't understand how the TFSA works (14 per cent), while 13 per cent said they don't know what a TFSA is.
"The tax-free savings account is an invaluable tool when it comes to saving money for the future but, unfortunately, many Canadians are unclear about the rules, which can lead to over-contribution mistakes and frustration for savers," said Peter Aceto, president and CEO of ING Direct Canada. "Like any registered product, there are certain rules when it comes to investing in a TFSA but it takes minimal effort to familiarize yourself with the ins and outs of the account."
More than one-quarter (27 per cent) of Canadians think you can only have one TFSA but Canadians can have multiple TFSAs, with more than one financial institution, said ING. And more than one-third (35 per cent) said they were unsure whether or not they receive a tax deduction for contributions to a TFSA, while eight per cent believe they do. Unlike an RRSP, contributions made to a TFSA don't result in a tax deduction.
One-tenth of survey respondents believe they have to pay tax when withdrawing funds from a TFSA, while one-third weren't sure. People don't have to pay income tax when they withdraw funds from their TFSA, said ING.
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