The sooner the victorious Harper Conservatives get the nation’s books back into balance, the sooner financial planners can factor in promised measures like family income splitting or the doubling of contributions to tax-free savings accounts.

Both promises are contingent on slaying the deficit, doable within the Tories’ four-year mandate. The prospect of $10,000 annual TFSA contributions is particularly enticing. However, a subsequent change in government could mean we’ll never see the TFSA doubling, so don’t count your TFSA chickens until they hatch.

That’s disappointing for affluent voters who voted for the Conservatives, many of whom also mourn the long-ago loss of the $100,000 capital gains tax exemption, the later tax on income trusts or the Tories’ reneging on a prior promise of tax-free capital gains on assets held six months or more.

Meanwhile, the government must also assuage the disappointment of low-income seniors who voted for other parties. Since the March budget should be resurrected with minor tweaks, as of July 1, the poorest single seniors can count on a $600/year hike of the Guaranteed Income Supplement and senior couples $840.

That is however less than the GIS hikes promised by the NDP and Liberals. Similarly, many middle-income workers are disappointed by not getting the expanded “Big” Canada Pension Plan also promised by rival parties.

But the Tories have an opportunity to placate all these disappointed voters by moving up the promised expansion of the TFSA. Reader Fred Wansleeben of Claresholm, Alta., is circulating a pre-election column of mine that showed the futility of saving outside tax shelters. It mentioned my contention that with RRSPs, you must either go big or go home, since RRSPs under $100,000 merely become RRIFs that generate taxable income and clawbacks of Old Age Security or the GIS.

That’s one reason TFSAs were introduced. Unlike RRIFs, TFSAs don’t result in OAS or GIS clawbacks, or some means-tested government programs. With TFSAs, you’re not punished for saving.

Wansleeben suggests low-income seniors be granted a penalty-free transfer of up to $100,000 from their RRSPs or RRIFs to their TFSAs. This would “offset the GIS clawback so they are rewarded for their years of saving rather than penalized.” It could be a one-time lump-sum allowance once CPP benefits commence.

Better yet, it could be broadened to give any retiree a one-time tax-free transfer from RRSPs or RRIFs to bring their TFSAs to $100,000. Those with larger balances would at least get a partial break on the first $100,000 of their savings.

I bounced this off Mercer partner Malcolm Hamilton, who has argued the case for retroactive TFSA contribution room going back to age 18. “I’m not sure how many GIS recipients have $100,000 in an RRSP, although I am sure some do,” he said, “Allowing people to roll $100,000 from an RRSP to a TFSA doesn’t just reduce GIS clawbacks; it eliminates income tax on the $100,000 as well,” he points out.

That might be too costly for a deficit-fighting government. It might be more palatable to grant a cumulative (over several years) transfer of $100,000 from RRSPs to TFSAs while paying tax on the transfers at the regular rate. The taxman loses the GIS clawback but not the income tax on the transfers. If the goal is making the 50% GIS clawback less punitive, the clawback rate could be cut to 25% or perhaps half of RRSP or pension income could be exempted from the clawback, Hamilton suggests.

Low-income seniors with modest amounts (say, $50,000) in RRSPs should remember they can reduce future GIS clawbacks by withdrawing money from their RRSPs, paying tax on it, then moving the net proceeds to TFSAs once they have enough contribution room. “They will lose their GIS in the year of withdrawal (unless they make the transfer before 65) but after that they can collect GIS as if they had never contributed to their RRSP.”

Wansleeben suggests contacting your member of Parliament, perhaps emailing him or her this column.

Financial Post

jchevreau@nationalpost.com