Could a new government reverse this year’s TFSA contribution limit?

Q: Given the current increase in contribution limits to TFSAs, does it make sense to borrow to maximize my TFSA while I can? I am concerned that a change in government might result in the increase in investment limits being lost. —Mike Dupuis, Alliston, Ont.

A: With the increase to the annual TFSA contribution going from $5,500 to $10,000, you now have a total contribution limit, as of 2015, of $41,000. Even if the Conservatives fail to get re-elected, I can’t imagine that this number will change. It would be a massively unpopular move to change it retroactively, and very difficult to pull off given how many Canadians have already contributed up to the new limit. Sure, a new government could easily reverse the limit increase for subsequent years—and the Liberals have promised that they will do so—but that wouldn’t impact the room you have already built up. As for the idea of borrowing to invest, there certainly are benefits and risks associated with borrowing, including interest deductibility, leverage, and the discipline required to pay back the loan. I’m not a fan of the practice personally, simply because of the risks involved. But it might make sense for you if you have both the financial and the psychological strength to handle any declines your investments might suffer.

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About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.