Escalation of future Tax-Free Savings Account (TFSA) contribution limits
Future TFSA contribution room will be indexed to inflation or more specifically, using the software's Default Tax Table Assumption setting, which is usually set to match inflation. Annual increases are rounded to the nearest $500 each year going forward.
For example, the allowance of $6000 in 2019, if escalated at a Default Tax Table Assumption rate of 2% per annum, with rounding to the nearest $500, would increase from $6000 to $6500 in 2022, from $6500 to $7000 in 2025, and so forth. Of course, if in future years we receive a different direction from the government, the contribution allowance will be adjusted accordingly.
Note - The software models the future escalation of TFSA contribution allowances using the Default Tax Table Assumption, a setting found in the software's Plan Settings. This setting is used in place of the inflation rate, which is used separately for the escalation of future expenses. While the Default Tax Table Assumption is often set to match inflation, it is up to the firm or enterprise to choose and set what it deems to be a reasonable escalation rate for this setting. Read more >> about the Default Tax Table Assumption.
We code for what we know
As a rule, Voyant software is coded to account for legislated rules and only escalates tax-related assumptions once we move beyond the known. For example, if the government were to announce that the annual saving allowance for Tax-Free Savings Accounts (TFSAs), which is currently $6,000 in 2021, is to be frozen at this level until 2024, the software would account for this and would only begin the escalation of the $6,000 contribution allowance from 2024 onward.
Note - For firms and enterprises who use Voyant’s white labelling/rebranding service, the option is available to escalate these tax related assumptions independently of one another, using different rates or to possibly exclude some from escalation. By default, AdviserGo is set to escalate all the aforementioned assumptions using a single Default Tax Table Assumption, which is currently set to escalate assumptions at 2% per annum. The option is available, however, to manage these assumptions separately.