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Looking towards 2023 TFSA contribution room
June 22, 2022
1:26 pm
Loonie
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We will be due for an increase in contribution room in 2023. My question is, "how much?"
I know it's early to be thinking about this, but inflation is very high.

Government websites tell me "The TFSA annual contribution room limit will be indexed to inflation and rounded to the nearest $500."

Does this mean we could be looking at a $1000 increase, or more? If so, what's your best guess?

June 22, 2022
1:32 pm
cgouimet
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I've been trying to figure that out too ...

All based on inflation is all I can find. Year to year or vs some starting point like say when it was set at $6k?

CGO
June 22, 2022
1:39 pm
cgouimet
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BTW ...

One Liberal Gov't decision that infuriated me was cancelling the increase to $10k that Harper tried to use to salvage one more term...

CGO
June 22, 2022
1:52 pm
Dean
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.
One thing's for Sure ... come sometime mid December, we'll know the new TFSA limit for next year. That's ~ 6 months away, so don't hold your breath, eh. sf-wink

Given that the Libs don't like the TFSA, I'm guessing it won't be much to get excited about. Maybe $6.5K ❓

Not much of anything to worry about. Most of us have Bigger Fish to fry. sf-smile

    Dean

sf-cool " Live Long And Prosper " sf-cool

June 22, 2022
6:28 pm
Bill
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Internet says: "The federal government announced that, starting in 2016, the annual TFSA limit would be fixed at $5,000, indexed to inflation for each year after 2009, but rounded to the nearest $500. That means once the cumulative indexed annual TFSA contribution limit hits $6,250, it will jump to $6,500. So when can you expect an increase?
For 2022, that indexed contribution amount is $6,162.70, based on a 2.4 % inflation factor, even though actual inflation was higher in 2021. The contribution limit is expected to increase to $6,500 in 2023, so long as the 2023 indexed inflation adjustment is at least 1.5%."

You can do your own calculation to determine what indexed adjustment % is needed this year to go from $6163 up to $6750 (where the limit would bump up to $7000). I believe the 2023 limit will be based on the indexing % for the 12 months ending Sept 2022.

June 22, 2022
7:30 pm
Loonie
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I'm still a bit fuzzy about this. Let's say that inflation in Sept 2022 is 7%. How would I figure out the impact on contribution room? How does 2.4% inflation turn out to be $163 on $6000 - or does it?

(This may seem like a premature question but it does have an impact on planning for someone i am trying to help.)

June 22, 2022
8:34 pm
Norman1
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TFSA contribution room added each year is not inflation-adjusted last year's contribution room added.

The exact calculation was explored in this earlier post.

June 22, 2022
10:47 pm
Loonie
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That earlier post doesn't seem to help me. I still don't know how to do the calculation. I see that Vatox did it before, but I don't know how.

June 23, 2022
8:02 am
cgouimet
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Loonie said
That earlier post doesn't seem to help me. I still don't know how to do the calculation. I see that Vatox did it before, but I don't know how.  

I hear you as the historical indexation factors really don't line up with inflation.

So, while there are bigger fish(ies) to fry, I am curious to see complete algorithm to go from whatever the TFSA baseline is ($5500 in 2013, or what?) through inflation through the indexation factor to get to the TFSA for a given year. Rounding to the nearest $500 is the only clear element at this time.

CGO
June 23, 2022
8:25 am
Bill
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The TFSA limit went to $6000 in 2019, so when the cumulative yearly index factors since then take it to $6250 then the limit will go to $6500. We're at $6163 so, based on the likely index factor as of Sept 30, it's reasonable to plan that next year's limit will be $6500. It would need about a 9.5% factor for it to hit $6750 thereby making next year's limit 7000, if I understand it right, so one can plan accordingly if the $500 calculation is critical to one's financial planning.

June 23, 2022
8:28 am
cgouimet
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Bill said
The TFSA limit went to $6000 in 2019, so when the cumulative yearly index factors since then take it to $6250 then the limit will go to $6500. We're at $6163 so, based on the likely index factor as of Sept 30, it's reasonable to plan that next year's limit will be $6500. It would need about a 9.5% factor for it to hit $6750 thereby making next year's limit 7000, if I understand it right, so one can plan accordingly if the $500 calculation is critical to one's financial planning.  

There is the issue of the relationship between inflation and indexation as historically there doesn't appear to be one ...

CGO
June 23, 2022
8:38 am
Bill
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There is one, though perhaps not as direct as you'd like, i.e. as inflation rises the index factor will, as it falls the index factor will.

The 2.4% factor for 2022 is used for various things:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/adjustment-personal-income-tax-benefit-amounts.html

June 23, 2022
9:29 am
cgouimet
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Bill said
There is one, though perhaps not as direct as you'd like, i.e. as inflation rises the index factor will, as it falls the index factor will.

The 2.4% factor for 2022 is used for various things:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/adjustment-personal-income-tax-benefit-amounts.html  

And that 2.4% was vs 4.7% Inflation. The previous 5 years were closer together (Ind vs Inf). So what might 7.7% Inf translate to Ind? The question ....

CGO
June 23, 2022
10:20 am
Bill
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I guess if the rate of change of inflation is accelerating then the gap will grow, plus there's the lag factor. The 2.4% was calculated for the y/e Sept 30/21, far as I know, for what period and from what source was the 4.7 inflation rate?

I'm not totally discounting a rise to $7000 for 2023 but I think it's unlikely and wouldn't use it for planning purposes.

June 23, 2022
10:26 am
cgouimet
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Bill said
I guess if the rate of change of inflation is accelerating then the gap will grow, plus there's the lag factor. The 2.4% was calculated for the y/e Sept 30/21, far as I know, for what period and from what source was the 4.7 inflation rate?

I'm not totally discounting a rise to $7000 for 2023 but I think it's unlikely and wouldn't use it for planning purposes.  

4.7% inflation was for the same Oct 30 2021 YE, 4.4% for Sep 2021 YE; same issue ...

CGO
June 23, 2022
10:48 am
Vatox
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Loonie said
That earlier post doesn't seem to help me. I still don't know how to do the calculation. I see that Vatox did it before, but I don't know how.  

I have the exact TFSA calculation formula for indexation. I found it long ago and couldn’t tell you where that was in the government files. I put it into a spreadsheet and just input the monthly CPI values. Then that index factor is used on last years amount to determine the exact increase. I haven’t updated the CPI values in years. I can try to locate that spreadsheet, but we have to wait till October to get the answer.

June 23, 2022
10:59 am
cgouimet
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Vatox said

I have the exact TFSA calculation formula for indexation. I found it long ago and couldn’t tell you where that was in the government files. I put it into a spreadsheet and just input the monthly CPI values. Then that index factor is used on last years amount to determine the exact increase. I haven’t updated the CPI values in years. I can try to locate that spreadsheet, but we have to wait till October to get the answer.  

I'd be interested in seeing that. We can use estimate Oct CPI until Oct is real ...

CGO
June 23, 2022
11:28 am
Vatox
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cgouimet said

I'd be interested in seeing that. We can use estimate Oct CPI until Oct is real ...  

I will locate the file, but you need to wait a week or two as I’m not near that computer now. I will get back to you.

June 23, 2022
11:32 am
Vatox
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I’m very confident that we will get $6500 in 2023. It’s in the bag already. The $7000 is unlikely as 9.55% is needed.

June 23, 2022
11:45 am
cgouimet
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Vatox said

I will locate the file, but you need to wait a week or two as I’m not near that computer now. I will get back to you.  

No problem. Looking forward to seeing it ...

CGO
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