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 limit for 2012
With the application of the indexation increase of 2.8% for 2012 and rounding the result to the nearest $500, theÂ TFSAÂ dollar limit for 2012 remains at $5,000.
Simple enough, it 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 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. 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 two 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 may be changed to round to the nearest $100? We are slipping against Inflation here if this rate of Inflation continues.
Tax Indexation Numbers
The CRA has also published the indexation fact sheet, which shows how many critical Income tax numbers have increased. Want to see them all? Sure, here they are:
|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|
|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|
|The amount for an eligible dependant (max.)||10,822||10,527|
|The amount for an eligible dependant (max. if dependant eligible for theÂ family caregiver amount)||12,822||N/A|
|The amount for children under age 18 (max. per child)||2,191||2,131|
|The amount for children under age 18 (max. per child eligible for theÂ 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 the family caregiver amount)||6,402||N/A|
|Net income threshold||15,033||14,624|
|Supplement for children with disabilities (max.)||4,402||4,282|
|Threshold relating to allowable child care and attendant care expenses||2,578||2,508|
|Adoption expenses (max. per adoption)||11,440||11,128|
|Medical expense tax creditâ€”3% of net income ceiling||2,109||2,052|
|Refundable medical expense supplement|
|Minimum earnings threshold||3,268||3,179|
|The family net income threshold||24,783||24,108|
|Old Age Security repayment threshold||69,562||67,668|
|Specific board and lodging allowances paid to players|
on sports teams or members of recreation programs
|Income exclusion (max. per month)||329||320|
|Tradesperson’s tools deduction|
|Threshold amount relating to the cost of eligible tools||1,095||1,065|
|Goods and Services Tax/Harmonized Sales Tax credit|
|The 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|
|Canada Child Tax Benefit|
|An additional benefit for a third child||98||95|
|Family net income at which base benefit begins to phase out||42,707||41,544|
|National Child Benefit (NCB) supplement|
|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|
|Canada Disability Benefit (CDB)|
|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|
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.
According to Gordon Pape’s Ultimate TFSA Guide, the inflation indexation is cumulative:
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.
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.
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:
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.
We can hope that, but I suspect that may not actually be the case
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:
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.