Inflation to trigger another rise in TFSA limit

Higher inflation is set to push the TFSA dollar limit to $7,000 in 2024, up from $6,500 this year. 

Next year’s increase represents the first time the TFSA dollar limit will rise in consecutive years. In 2023, the contribution amount rose to $6,500 from $6,000 in 2022. 

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. 

However, the TFSA dollar limit for 2024 can be calculated using the consumer price index (CPI) published by Statistics Canada on Tuesday — which came in at 3.8% for September 2023. 

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 provided by Dany Provost, director of financial planning and tax optimization with SFL Expertise in Quebec, the indexation factor for 2024 will be 1.04725145. Rounded to three decimal points, that translates to an indexation rate of 4.7%. (By comparison, the indexation rate for 2023 was 6.3%.) 

The annual TFSA dollar limit is fixed at a 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 2024 is $6,858.85. That underlying limit is then rounded to the closest $500 increment, or $7,000. 

That means the total contribution room available in 2024 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is set to be $95,000, up from $88,000 this year. 

For someone who turned 18 after 2009, TFSA contribution room starts accumulating in the year they turned 18. For example, someone who turned 18 in 2022 and who has never contributed to a TFSA has $12,500 in TFSA contribution room this year. If that person doesn’t contribute to a TFSA in 2023, they will have $19,500 in TFSA contribution room in 2024. 

Jason Heath, managing director of Objective Financial Partners Inc. in Markham, said he’s “shocked” at how often he meets with prospective clients who have unused TFSA contribution room, despite having cash sitting in a bank account or investments in a non-registered account. 

“I’ve had people say, ‘Oh, that $50,000 of cash I have is my savings account,’ and they have no TFSA,” Heath said. “Well, they need to open a TFSA and hold that cash in a tax-free savings account.”  

While contributions to a TFSA are not tax deductible, withdrawals of contributions and growth from the account are tax-free. Contributions to a TFSA can be made in cash or in-kind. 

Here are the TFSA dollar limits by year: 

• 2024: $7,000
• 2023: $6,500
• 2019-2022: $6,000
• 2016 -2018: $5,500
• 2015: $10,000
• 2013-2014: $5,500
• 2009-2012: $5,000