On November 26th, 2012, The Canadian government announced that it had boosted the limit on its popular Tax-Free Savings Account (TFSA), by $500.
Beginning next year, the ceiling will be $5,500 a year.
When it introduced the savings vehicle in 2009, the government said the $5,000 limit would move in $500 increments tied to inflation. This is the first year that’s happening.
“An additional $500 in annual TFSA contribution room can have an important impact on the amount of tax-free savings an individual can earn,” the government said.
“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 … 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).”
The TFSA has been popular since it was introduced, though recent surveys suggest Canadians still need more education.
The latest survey by Bank of Montreal showed less than 50% of savers are putting in the maximum of $5,000 a year, though 57% say they will go to ceiling within the next five years.
But while 60% of those polled claim to be “knowledgeable” about the savings vehicle, only 44% knew the contribution limit and 37% didn’t know what TFSAs can hold, such as stocks and bonds.
See the government’s calculations, here.
For more TFSA information, please go to the CRA website, here.