Archived - Backgrounder: 2013 Tax-Free Savings Account Annual Contribution Limit Increase

Benefits of an Additional $500 in Annual TFSA Contribution Room

An additional $500 in annual TFSA contribution room can have an important impact on the amount of tax-free savings an individual can earn. Over a 20-year period, an individual can accumulate significantly more in TFSA savings than under the original $5,000 annual contribution limit. For example, as illustrated in the graph below, a middle-income saver could accumulate about $2,340 more in tax savings on their investments than if the additional investment had been made in a taxable savings vehicle (unregistered account).

Additional Tax-Free Savings

Notes: Based on an additional $500 of contributions made at the beginning of each year for 20 years and assuming a 5.5 per cent annual rate of return. On unregistered savings, a combined federal-provincial average tax rate of 21.5 per cent on investment income is assumed (based on 40 per cent interest, 30 per cent dividends and 30 per cent capital gains and a middle-income saver).

Indexation of the TFSA Annual Contribution Limit

The $5,000 annual contribution limit is indexed to inflation using the Consumer Price Index (CPI) data as reported by Statistics Canada, rounded to the nearest $500. This means that, each year, an unrounded indexed amount is calculated based on increases in the CPI, but the annual contribution limit changes only when the unrounded amount reaches the rounding threshold (see the table below). For 2013, the unrounded indexed amount moved beyond the $5,250 threshold for the first time, so the annual contribution limit increases to $5,500.