TFSA increase on the horizon? Not likely for a while

National Post


If you're anticipating an increase in the annual TFSA contribution limit for next year, don't hold your breath.

While the official announcement can't be made until September's inflation numbers are out, it's safe to say that the TFSA annual contribution limit will remain at $5,500 for 2015 and likely for a few years beyond that, barring either a significant rise in inflation or a legislative change.

TFSAs were launched in the 2008 federal budget and first became available to Canadians for the 2009 calendar year. The initial annual contribution limit of $5,000 has now risen to $5,500 and unused contribution room can be carried forward to future years such that the cumulative limit for someone who has never contributed can be as high as $31,000 in 2014. As an added bonus, any withdrawals from a TFSA get added back to your contribution room the following calendar year.

The TFSA rules in the Tax Act specify that the annual TFSA limit is to be determined by indexing $5,000 to inflation and rounding the result to the nearest $500, to make the annual limits easy to remember. After all, only tax geeks can remember that the 2013 maximum RRSP contribution limit was $23,820 and for 2014, it's now up to $24,270. These odd numbers are the result of full indexation (with no rounding) introduced to the RRSP limits starting in 2011.

Each fall, the Canada Revenue Agency announces the indexation increase for the following calendar year. The "indexation factor" for 2014 will be officially calculated by taking the percentage change in the average monthly Consumer Price Index (CPI) data as reported by Statistics Canada for the 12-month period ended Sept. 30, 2014 relative to the average CPI for the 12-month period ended on Sept. 30, 2013.

If we run the inflation math to the end of June 2014 (the latest month for which we have CPI data), we can estimate the 2015 TFSA limit. Starting with $5,000 for 2009, we then adjust for the inflation factors for 2009 (0.6%), 2010 (1.4%), 2011 (2.8%), 2012 (2.0%), 2013 (0.9%) and 2014 (1.5% to June) and we get $5,394 (i.e. $5,000 x 1.006 x 1.014 x 1.028 x 1.02 x 1.009 x 1.015), which rounded to the closest $500 gives us a $5,500 TFSA limit yet again for 2015.

Indeed, if the annual inflation number continues at 1.5% annually, it would actually take until 2019 before the TFSA annual contribution limit rises naturally by its next $500 increment to $6,000.

Of course, if the government follows through on the Conservatives' 2011 pre-election promise to double the TFSA contribution limit to $10,000 once the federal budget is balanced, we could see a significantly higher contribution limit much sooner than the inflation numbers would seem to indicate.