Next year’s limit can be calculated using CPI data released Wednesday
High inflation rates are set to push the TFSA dollar limit for 2023 to $6,500, up from $6,000 this year.
That means the total contribution room available in 2023 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is set to be $88,000.
The Canada Revenue Agency will officially announce the 2023 indexation rate for personal income tax and government benefits in the coming weeks. That indexation rate applies to the annual TFSA dollar amount as well as tax brackets, for example.
However, the TFSA dollar limit for 2023 can be calculated using the consumer price index (CPI) published by Statistics Canada on Wednesday — which clocked in at 6.9% for September 2022.
The federal indexation “factor” for the coming year is calculated as the average of the monthly CPI for the 12-month period ended Sept. 30 of this year, divided by the average CPI for the 12-month period ended on Sept. 30 of the previous year.
According to calculations by Dany Provost, director of financial planning and tax optimization with SFL Expertise in Quebec, the indexation factor for 2023 will be 1.06286256. Rounded to three decimal points, that translates to an indexation rate of 6.3%. (By comparison, the indexation rate for 2022 was 2.4%.)
For tax years after 2016, the annual TFSA dollar limit is fixed at the base amount of $5,000, indexed to inflation for each year after 2009, and rounded to the nearest $500. According to Provost, the underlying TFSA dollar limit by indexation for 2023 is $6,551. That underlying limit is then rounded to the closest $500 increment, or $6,500.
Next year will probably be the only one where the TFSA dollar limit will be $6,500, Provost predicted. That’s because even if CPI were to fall to an average of 2.0% for the next 12-month period, the 2024 underlying limit would still be $6,793, or $7,000 rounded up.
Doug Carroll, a tax and estate specialist with Aviso Wealth Inc. in Toronto, agreed that even if inflation were to slow, “we do appear to be approaching a point where the TFSA annual [contribution] room may get that $500 bump every couple of years.”