Posted By 
By John De Goey
Special to the Financial Independence Hub
Canadians are notoriously nice consensus seekers. The old joke might be that they tend to never cross the road because they consistently prefer to be in the middle. If that’s the case, I’d like to propose a “Canadian” solution to the ongoing debate about how much should be allowed to contribute to their TFSAs annually.
You may recall that the limit is currently set at $5,500 and is likely to go up to $6,000 in a year or two (TFSA contributions are indexed to cumulative inflation and go up in $500 increments when thresholds are passed). You may also recall that for one brief year, the limit was set at $10,000 in keeping with a political promise made by a party that is no longer in power in Ottawa. The debate, it seems has mostly revolved around the benefit of incremental tax relief for those who might not need it.
You may recall that I have argued that there is an unfair cap put on RRSP contributions because the 18% limit that applies to most people essentially penalizes the small percentage of Canadian income earners who make more than about $145,000 a year. Similarly, some people like CIBC’s Jamie Golombek have pointed out that many Canadians are opposed to using RRSPs because they will end up paying tax down the road when making RRIF withdrawals. The point made by Golombek* and others including yours truly is that people should be thinking about the concept of ‘tax bracket arbitrage’ when contributing to government plans. If you’re in a higher tax bracket now as compared to in retirement, contributing to your RRSP makes more sense. If you’re in a lower bracket, the TFSA makes more sense. If you think you’ll be in the same bracket, it makes no difference.
Posted By 
