Skip to main content
investor clinic
When will the annual TFSA contribution limit be going up? It seems like ages since we had an increase.

You’ll have to wait a little longer. In November, the federal government announced that the annual dollar limit for tax-free savings accounts will remain at $6,000 for 2022, where it has been since 2019.

Now for the good news: The limit could rise as early as 2023.

Here’s why: The TFSA annual dollar limit is indexed to inflation and rounded to the nearest $500. Before rounding, the limit for 2022 is about $6,162.70, according to Dorothy Kelt of TaxTips.ca.

That is just short of the $6,250.01 required for the TFSA limit to be rounded up to $6,500. All it would take is an inflation rate of about 1.5 per cent, as measured by the change in the consumer price index from October, 2021, through September, 2022, Ms. Kelt said.

Given that the CPI has surged by more than 4 per cent on a year-over-year basis in recent months – driven by supply chain disruptions, labour shortages and higher energy costs – unless inflation cools considerably the TFSA limit will almost certainly be going up in 2023.

How can I find out how much TFSA contribution room I have?

If you have registered with the Canada Revenue Agency’s “My Account” service, you can check your TFSA contribution room online any time. But be careful: The number the CRA provides won’t reflect any TFSA transactions you made in the current year. For example, I deposited the maximum into my TFSA back in January, but the CRA is still showing $6,000 of contribution room that I don’t actually have.

Worse, it will likely be several months into 2022 before financial institutions get around to filing updated 2021 TFSA transaction records to the CRA. By that time, many Canadians will have already made their 2022 contributions. So, if you check your CRA account in, say, February, your TFSA contribution room could be two years out of date.

That’s why it’s important to stay on top of your TFSA contribution room. The formula is straightforward: Add up your unused TFSA room for years when you were at least 18 and eligible to contribute, plus any withdrawals you have made. Withdrawals are added to your contribution room on Jan. 1 of the year following the withdrawal, along with the annual dollar limit for that year.

For example, say you entered 2021 with $15,000 of unused contribution room, including the $6,000 dollar limit for this year. If you contributed $5,000 to your TFSA in March, then withdrew $7,000 in November, your TFSA contribution room as of Jan. 1, 2022, would be $23,000 ($15,000 minus your $5,000 contribution in 2021, plus your $7,000 withdrawal in 2021, plus $6,000 of new contribution room for 2022.)

What if I go over my contribution limit?

You don’t want to do that. Amounts that exceed your available contribution room are subject to a penalty tax of 1 per cent per month. This is another reason to track your TFSA contributions and withdrawals closely.

What should I put in my TFSA?

I’ll tell you one thing I wouldn’t hold in my TFSA: a lot of cash. Cash earns next to no interest these days, so stuffing it into a TFSA defeats the account’s purpose, which is to avoid taxes on investment income. In general, you’re better off using your TFSA room for stocks, exchange-traded funds, mutual funds or fixed-income securities with higher yields so you can eliminate tax on the interest, dividends and capital gains. Now, if you have plenty of available TFSA room and don’t have to choose what goes in and what stays out, then by all means keep your low-yielding cash in there, too.

If a stock blows up in my TFSA, can I claim the loss for tax purposes?

Sorry, no. Only capital losses in a non-registered account can be used to offset taxable capital gains.

My spouse has a lot of unused TFSA room but doesn’t make enough money for contributions. Can I contribute to my spouse’s TFSA so that we maximize our tax savings?

Technically, you can’t contribute money directly to your spouse’s TFSA; only the account holder can make a TFSA contribution. However, it’s perfectly fine to give your spouse cash to deposit into his or her TFSA. That way, as a couple you can double your annual TFSA contributions. Keep in mind that the contribution and any income it generates will belong to your spouse.

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.