By Melissa Shin at Advisor.ca

December 8, 2015

It’s official. The $10,000 TFSA limit is rolling back to $5,500. The change is effective January 1, 2016, so clients will not be affected for 2015.

That means there’s no rush to contribute, says Jamie Golombek, managing director, Tax and Estate Planning with CIBC Wealth Advisory Services. “You’ve got an indefinite amount of time to top up to $10,000,” he explains. “The legislation says the 2015 limit is staying at $10,000, so if you don’t have the money this year, you can top up in 2016″ or later. “Remember, the TFSA contribution room carries forward annually automatically.”

If taxpayers have the money to contribute, he says, they should put it in as soon as possible. But if not, “there’s no rush anymore, because we have certainty that we’ve locked the $10,000 limit in for 2015. Next year’s limit will go to $5,500, which means if you haven’t done the $10,000 this year, you can do it next year, and you’ll have another $5,500 next year.”

Monday’s Dept. of Finance announcement also stated that annual TFSA limit indexing, which was eliminated earlier this year, will return. The TFSA limit will be rounded to the nearest multiple of $500, and if the amount is “equidistant from two such consecutive multiples,” the limit will be rounded to the higher multiple of $500.

“That makes sense; otherwise, it’s very hard to track,” says Golombek. “For instance, [...] because it’s not rounded, no one remembers the exact number of the RRSP contribution limit year to year. The TFSA has tried to solve that by introducing a rounding factor.”

Clients mourning the lost $4,500 2016 room? In addition to maximizing RRSPs, Golombek suggests clients could put more in RESPs if they have children. “They could contribute beyond the $2,500 a year to maximize the Canada Education Savings Grant, since you put up to $50,000 per child in an RESP.”

Other options include paying down high-interest debt and investing in a permanent UL or WL insurance policy “to achieve further tax sheltering.”

As of 2016, the cumulative TFSA limit for people eligible to contribute since 2009 will be $46,500.

What to do about tax bracket changes

Meanwhile, high-income Canadians looking to minimize their federal income tax should look at taking any bonuses they may be due or big capital gains this year to avoid paying more when Ottawa’s new top rate kicks in next year.

Tax experts say if you are lucky enough to find yourself in Ottawa’s new top bracket — those earning $200,000 or more — you shouldn’t defer any income that you can take this year because you’ll pay more if you do.

Mariska Loeppky, director of tax and estate planning at Investors Group, says if you’re in the top bracket you can save yourself 4% in federal tax for every dollar you can push into 2015 compared with 2016. “In a high-income tax rate environment you’re going to want to look at all the things that can help you save tax,” she says.

She also suggests people may also want to defer claiming this year’s RRSP contribution until the 2016 tax year to maximize the benefit. She estimated that those in the top bracket could save $800 by deferring the deduction on a $20,000 contribution.

“Nothing says you have to take the deduction in 2015,” she says, noting the downside is that people won’t see the boost in their tax refund until they file their 2016 taxes if they defer the deduction.

“But if you’ve got quite a bit of RRSP contribution room, it will save you a little bit more money next year if you decide to claim the deduction then.”

However, if you’re in the middle bracket that is getting a tax cut, the opposite is true. You likely don’t want to defer any deductions.

Michelle Munroe, director of tax planning at Fidelity Investments, also says as long as it won’t push you into a higher bracket, you may want to defer any bonus you might be in line to receive until next year. “It depends on how big the bonus is,” she says. “You don’t want to push yourself into a higher tax category.”

In addition to the tax rate changes, Ottawa is ending the controversial income-splitting plan for families next year.