The Tax Free Savings Account turns 10 this month and many Canadians have fully embraced the benefits that come from tax-efficient investment income and growth within these accounts.
The federal department of finance releases index adjustments for personal income tax and benefit amounts every year. The index rate is effectively the Consumer Price Index reported by Statistics Canada. Most personal income tax and benefit amounts are indexed to inflation annually.
Indexing increases have been fairly steady for the last three years — 1.3 per cent (2016), 1.4 per cent (2017) and 1.5 per cent (2018). The index increase for 2019 has jumped significantly to 2.2 per cent.
What makes the TFSA different is that adjustments are only done to the nearest $500 increment. As a result, several years can go by without changes to the annual limit.
For calculation purposes, the annual TFSA dollar limit was initially fixed at $5,000 and indexed to inflation for each year after 2009. The one exception to this was the one time large increase in 2015.
The following are the annual and cumulative limits:
Year Annual limit Cumulative limit
2009 $ 5,000 $5,000
2010 $ 5,000 $10,000
2011 $ 5,000 $15,000
2012 $ 5,000 $20,000
2013 $ 5,500 $25,500
2014 $ 5,500 $31,000
2015 $10,000 $41,000
2016 $ 5,500 $46,500
2017 $ 5,500 $52,000
2018 $ 5,500 $57,500
2019 $ 6,000 $63,500
If you have never contributed to a TFSA, the cumulative limit is an important number. If you were 18 or older in 2009, then you may contribute $63,500 to a TFSA if you have never contributed to one before.
In many cases, people have put some funds in, but have not maximized contributions. In other cases, people have pulled funds out of the TFSA, in which case you are able to replenish this room in the next calendar year.
Before you contribute, it is important to know your contribution room. When the TFSA first came out, your annual contribution room was noted on your notice of assessment. This was soon eliminated on the assessments.
The best way to obtain your contribution room is to log into “My Account” through the Canada Revenue Agency website. This will enable you to obtain both your TFSA contribution room and transaction summary (a record of all your past contributions and withdrawals). It is always best to check your limit before contributing. Although you may have more than one TFSA, we recommend having only one to ensure no over-contributions are done. Over-contributions are subject to a penalty of one per cent per month on the excess.
In addition to knowing what dollar amount to contribute into your TFSA, we also encourage you to know all of your investment options. The choice of investment options should reflect your investment objectives, risk tolerance, and time horizon. Once these have been determined, contributing early is advisable.
Next week we outline some strategies on how to contribute to your TFSA early in the year.
Next week: Strategies help contribute to your TFSA early
Kevin Greenard, CPA CA FMA CFP CIM, is a portfolio manager and director of wealth management with the Greenard Group at Scotia Wealth Management in Victoria. His column appears every week in the Times Colonist. Call 250-389-213 www.greenardgroup.com