TFSA limit for 2022 released

The annual TFSA dollar limit is indexed to inflation and rounded to the nearest $500. The Canada Revenue Agency’s indexation increase for 2022 is 2.4%

For clients who have withdrawn from TFSAs, their crystallized gains and losses from withdrawals are factored in to their TFSA room. The formula is:

Unused TFSA contribution room to date + total withdrawal made in this year + next year’s TFSA dollar limit = TFSA contribution room at the beginning of next year

Here are the dollar amounts by year:

For 2009, 2010, 2011 and 2012:	$5,000
For 2013 and 2014:	$5,500
For 2015:	$10,000
For 2016, 2017 and 2018:	$5,500
For 2019, 2020, 2021 and 2022	$6,000

Anyone 18 or older and who has a valid social insurance number is eligible to open a TFSA. Contribution room accumulates beginning in the year in which a person turns 18.

TFSA holders are permitted to hold a wide range of investments in their TFSAs, including mutual funds, ETFs, bonds, publicly traded securities and certain private company shares — in short, every type of investment an investor can hold in an RRSP or RRIF.

However, many people limit their TFSA holdings to GICs or cash.

“People still make the mistake of thinking this is a savings account, so they just leave [assets in the account] in cash or they’ll buy a GIC, and earn very little interest,” said Carol Bezaire, senior vice-president of tax, estate and strategic philanthropy with Mackenzie Investments in Toronto. “But if you use the TFSA as a tax-free investment account, you’ll be able to grow that money a lot faster, with some good advice.”

Graham Priest, a financial advisor with BlueShore Financial in Vancouver, said some clients have seen the tangible benefits of holding investments in their TFSA as the equities markets have risen. Clients who have sold high-flying securities held in their non-registered accounts have been unpleasantly surprised by the amount of the capital gains tax triggered.

“They say to themselves, ‘You know what, I wish I had held that [security] in my TFSA,’” Priest said.

Clients can choose to make an “in kind” contribution of an investment to their TFSA, subject to certain limitations. The contributed property is deemed sold, and any resulting capital gain must be reported on the individual’s tax return. However, if the contributed property is in a loss position, the resulting capital loss can’t be claimed under the rules in the Income Tax Act governing superficial loss.

Foreign funds or securities can be contributed to a TFSA, but the financial institution issuing the TFSA will report the transaction as converted to Canadian currency on the day of the transaction. The contribution amount in Canadian dollars can’t exceed available contribution room.

Clients should also know that foreign dividend income earned in a TFSA may be subject to foreign withholding tax, for which no offsetting foreign tax credit is available.

“There’s no withholding tax if you hold the [same] investment in your RRSP or RRIF because many foreign governments recognize RRSP/RRIFs as retirement accounts, but TFSAs are not recognized [as such],” Bezaire said. “They’ll withhold tax when they pay a dividend to your TFSA, but you can’t claim it as a foreign tax credit.”

Federal tax bracket thresholds for 2022

• The 33.0% tax rate begins at taxable income of over $221,708, up from $216,511 in 2021.
• The 29.0% tax rate begins at taxable income of over $155,625, up from $151,978 in 2021.
• The 26.0% tax rate begins at taxable income of over $100,392, up from $98,040 in 2021.
• The 20.5% tax rate begins at taxable income of over $50,197, up from $49,020 in 2021.
• Income below $50,197 is taxed at 15.0%.

The basic personal amount for 2022 is $14,398 for taxpayers with net income of $155,625 or less. At income levels above $155,625, the basic personal amount is gradually clawed back until it reaches $12,719 for net income of $221,708.