## TFSA Limits Don’t Rise (again) but CRA Thresholds Do

Sometimes the arithmetic of the rules that govern things causes things to seem a little screwed up and an example of this is found in a bulletin I got from the CRA about the TFSA limit for 2012.  The bulletin was quite simple (you can read it here), but it said:

TFSA dollar limit for 2012
With the application of the indexation increase of 2.8% for 2012 and rounding the result to the nearest \$500, the TFSA dollar limit for 2012 remains at \$5,000.

Simple enough, makes perfect sense, the calculation is pretty simple 2.8% of \$5000 is \$140, and thus it is rounded down to ZERO since it isn’t close to \$500.

The problem I have with this rule is that the TFSA limit has not gone up since it was introduced because the “indexation” keeps rounding back to Zero Dollars. In fact the Indexation needs to be around 5.1% before there is even a chance for the TFSA limit to move up \$500 (that would be a little more than \$250 on \$5000, but whether it would round UP to \$500 remains to be seen).

If we assume around 2% inflation for the past 2 years or so that means if the indexation didn’t “round” to the nearest \$500 the TFSA limit would be around \$5200 by now, but due to the rounding rule, we are stuck at \$5000.

I like the TFSA as an investment vehicle, and hope to see the program grow (or at least continue) but I would like to see this rule changed or maybe changed to round to the nearest \$100? We are slipping against Inflation here, if this rate of inflation continues.

### Tax Indexation Numbers

The CRA have also published the 2012 indexation fact sheet, which shows how many of the important Income tax numbers have increased. Want to see them all? Sure, here they are:

2012
(\$)
2011
(\$)
Tax bracket thresholds
Taxable income above which the 22% bracket begins 42,707 41,544
Taxable income above which the 26% bracket begins 85,414 83,088
Taxable income above which the 29% bracket begins 132,406 128,800
Amounts relating to non-refundable tax credits
Basic personal amount 10,822 10,527
Age amount 6,720 6,537
Net income threshold 33,884 32,961
Spouse or common-law partner amount (max.) 10,822 10,527
Spouse or common-law partner amount (max. if eligible for the family caregiver amount) 12,822 N/A
Amount for an eligible dependant (max.) 10,822 10,527
Amount for an eligible dependant (max. if dependant eligible for the family caregiver amount) 12,822 N/A
Amount for children under age 18 (max. per child) 2,191 2,131
Amount for children under age 18 (max. per child eligible for the family caregiver amount) 4,191 N/A
Canada employment amount (max.) 1,095 1,065
Infirm dependant amount (max. per dependant) 6,402[Footnote 1] 4,282
Net income threshold 6,420 6,076
Caregiver amount (max. per dependant) 4,402 4,282
Caregiver amount (max. per dependant eligible for thefamily caregiver amount) 6,402 N/A
Net income threshold 15,033 14,624
Disability amount 7,546 7,341
Supplement for children with disabilities (max.) 4,402 4,282
Threshold relating to allowable child care and attendant care expenses 2,578 2,508
Medical expense tax credit—3% of net income ceiling 2,109 2,052
Refundable medical expense supplement
Maximum supplement 1,119 1,089
Minimum earnings threshold 3,268 3,179
Family net income threshold 24,783 24,108
Old Age Security repayment threshold 69,562 67,668
Certain board and lodging allowances paid to players
on sports teams or members of recreation programs
Income exclusion (max. per month) 329 320
Threshold amount relating to cost of eligible tools 1,095 1,065
Goods and Services Tax/Harmonized Sales Tax credit
Child maximum 137 133
Single supplement 137 133
Phase-in threshold for the single supplement 8,439 8,209
Family net income at which credit begins to phase out 33,884 32,961
Base benefit 1,405 1,367
Additional benefit for third child 98 95
Family net income at which base benefit begins to phase out 42,707 41,544
National Child Benefit (NCB) supplement
First child 2,177 2,118
Second child 1,926 1,873
Third child 1,832 1,782
Family net income at which NCB supplement begins to phase out 24,863 24,183
Family net income at which NCB supplement phase-out is complete 42,707 41,544
Maximum benefit 2,575 2,504
Family net income at which CDB supplement begins to phase out 42,707 41,544
Children’s Special Allowances (CSA)
CSA Base Amount 3,582 3,485

## Footnotes

[Footnote 1] Includes family caregiver amount of \$2,000.

• TFSA March 5, 2012 at 2:23 pm edit

The indexing is cumulative.

2009 limit is \$5,000
2010 indexing factor is 0.6 per cent. (\$5,030)
2011 indexing factor is 1.4 per cent. (\$5,100)
2012 indexing factor is 2.8 per cent. (\$5,243)
2013 indexing factor is unknown but barring zero change to the index the TFSA dollar limit will be \$5,500 even though the real figure will likely be less than that.

• AllDailyDeals.ca December 12, 2011 at 11:48 pm edit

According to Gordon Pape’s Ultimate TFSA Guide, the inflation indexation is cumulative:

• Bob December 12, 2011 at 11:33 pm edit

I believe the indexing is culmulative however the question is when did the indexing clock start. According to the Canada Tax Act the TFSA dollar limit is “adjusted each year AFTER 2009″ and rounded to the nearest \$500 increment. Since the Government normally uses Nov year X to Oct Year X+1 in these types of calculations, I take after 2009 to mean indexing starts in Nov 2009 running to Oct 2011 as the period used in the calculation for the 2012 limit. According to StatsCan, CPI in Nov 09 was 115.2 and in Oct 11 was 120.8 so the calculation would be \$5000 x 120.8 / 115.2 = \$5243, just below the level to trigger the increase to \$5500. Unless we see deflation there should be an increase in 2013.

• My Own Advisor December 12, 2011 at 8:34 pm edit

That is annoying. (Limits didn’t rise.) Ugh.

Do you think if Canadians petitioned enough, we could get them to increase the limit?

Last time I checked, these are elected officials working for us.

• AllDailyDeals.ca December 12, 2011 at 10:30 am edit

If the TFSA dollar limit is indeed calculated in that way it certainly is outrageous. But I don’t think that’s the case. According to [http://www40.statcan.ca/l01/cst01/econ46a-eng.htm] the CPI changes for 2009 and 2010 were as follows:

2009 0.3%
2010 1.8%

We can calculate the cumulative indexed limit to be:

\$5,000 * 1.003 * 1.018 * 1.028 = \$5,248.22

So we’re a whopping buck seventy-eight away from a TFSA limit increase next year.

• Echo December 12, 2011 at 8:57 am edit

Interesting that the number reverts back to zero. I was under the impression that the numbers would look something like this, assuming 2% per year:

2009: \$5,000
2010: \$5,100
2011: \$5,202
2012: \$5,306

2012 would trigger an increase in contribution limits to \$5,500 (closest \$500). It’s the inflation number is not cumulative, then what’s the point? Hopefully the gov’t just increases the limit to \$10k sooner than later.