Looking towards 2023 TFSA contribution room | Tax Free Savings Accounts | Discussion forum

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...

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.

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.

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.

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 ...

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 ....

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 ...

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 ...

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.