How to Earn Big TFSA Income That the CRA Can’t Touch

Enbridge (TSX:ENB) stock is one of the best stocks to buy for your TFSA in order to generate significant income with no CRA tax bill.

| More on:
Canadian Dollars

Image source: Getty Images

The Canada Revenue Agency, or CRA, has their hands in the pockets of tax-paying citizens like us. It’s a necessary downside to living in this great country but also one that can be managed. Tax-saving strategies, like maximizing your Tax-Free Savings Account, or TFSA, can put significant amounts of money back in your wallet.

Here are two stocks to buy to earn tax-free dividend income and capital gains that the CRA can’t touch.

Enbridge: A 7.65% yield means there are a lot of CRA savings to be had

I’ve said it before, and I’ll say it again: Enbridge (TSX:ENB) is one of the most interesting opportunities for investors today. With its 7.65% yield and its standing as one of Canada’s top energy infrastructure companies, investors would do well adding it to their TFSA.

Let’s start with the dividend. Enbridge’s annual dividend of $3.55 per share is one that has been reliable and consistent over time. It’s also been growing over time. In fact, Enbridge has 28 years of annual dividend increases under its belt. During this time period, its annual dividend has grown at a compound annual growth rate (CAGR) of 7.25%. Essentially, the dividend today is 1,320% higher than it was in 1995.

So, let’s consider the implications of this. As we know, the CRA always gets a chunk of our investment income through taxation. Dividend income has a lower tax rate, but the taxation still adds up. For example, let’s assume you own 500 shares of Enbridge. This would translate into $1,775 of annual dividend income. Assuming your federal marginal tax rate is 29% and your provincial tax rate is 15%, your annual tax bill would be $465 for the dividends received.

This taxation amount adds up quickly over the years and as the money invested increases. Over five years, your tax payments to the CRA would amount to $2,325; over 10 years, your payments would amount to $4,650; and so on. While this rate is more attractive than the tax rate on interest income, it’s even more attractive to shelter it in a TFSA and skip the CRA payment altogether.

BCE: Canada’s telecom company is yielding 7.19%

When looking for stocks to buy in your TFSA, BCE (TSX:BCE) is another stock that I think we should all consider. Canada’s leading telecom company boasts an unmatched network, with the fastest and farthest-reaching broadband internet connection. Also, BCE has a leading position in fibre optics and 5G, which is on track to grow to 85% penetration in Canada.

All of this will continue to support the business and the dividend. In BCE’s latest quarter, cash flow from operations increased 18% to just over $2 billion. Over the last five years, BCE’s annual cash from operations has grown 12.6% to $8.3 billion.

Like Enbridge, BCE is a leading company with stable and growing cash flows and dividends. In fact, BCE’s dividend is 223% higher than it was in 2000, and it’s grown at a CAGR of 6.22% during this time period.

Buying BCE stock for your TFSA will shelter these dividends from the CRA’s tax bill. If you own 500 shares of BCE, your annual dividend income would be $1,935. Owning this dividend stock in your TFSA would allow you to skip the $507 annual CRA tax payment. And this is how to earn big TFSA income that the CRA can’t touch.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has a position in BCE and Enbridge. The Motley Fool recommends Enbridge. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Senior Couple Walking With Pet Bulldog In Countryside
Dividend Stocks

The TFSA Play: Turn $6,500 Into a Retirement Goldmine

This is how I would personally invest a $6,500 TFSA contribution for long-term growth.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

TFSA Investors: How to Earn $100 Each Month for Retirement

High-yield dividend stocks like Peyto Exploration and Production offer TFSA investors exposure to very generous yields.

Read more »

Man holding magnifying glass over a document
Dividend Stocks

Dividend Seekers: 2 Incredibly Cheap TSX Stocks to Buy for Dividends

These two TSX stocks can be excellent investments for long-term dividend income in a self-directed portfolio.

Read more »

grow money, wealth build
Dividend Stocks

Can Canada’s Dividend Aristocrats Keep it Up?

Are you interested in dividend stocks? Here are three Canadian Dividend Aristocrats that could keep paying shareholders!

Read more »

The sun sets behind a high voltage telecom tower.
Dividend Stocks

Does Algonquin Stock’s 7.68% Dividend Yield Make it a Buy?

Algonquin (TSX:AQN) stock saw some recent improvements during the last quarter, but is that enough to consider its dividend yield?

Read more »

Illustration of bull and bear
Dividend Stocks

Defensive Sectors: A Safe Haven for Canadian Investors in a Bear Market

There are defensive stocks, and then there are stocks that will help your portfolio soar out of this bear market.…

Read more »

Dividend Stocks

How to Build a Passive Income Portfolio Starting With Just $6,500

Looking to build a passive income portfolio? There's no shortage of great options on the market, including these three stellar…

Read more »

Dividend Stocks

New TFSA Limit for 2024: Where to Invest $7,000

Canadian investors can hold blue-chip TSX stocks such as TD Bank in a TFSA and generate outsized returns in 2024.

Read more »