Canadians are searching for ways to get better returns from their savings without getting hit by a larger tax bill. One strategy to achieve the goal of earnings tax-free passive income is to own investments inside a Tax-Free Savings Account (TFSA).
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TFSA limit 2024
The TFSA limit will increase from $6,500 in 2023 to $7,000 in 2024. This will bring the maximum cumulative TFSA contribution room per person to $95,000 from $88,000 in 2023. Retirees and high-income individuals might have the excess cash available to maximize their TFSA contribution space. Even investors with limited extra cash can still take advantage of the TFSA to generate some passive income.
Unused TFSA room is carried forward and doesn’t expire. In addition, any funds removed from a TFSA during the year will open up equivalent new contribution space in the following calendar year.
Good TFSA investments for passive income
Investors have an opportunity in the current market to get good returns from Guaranteed Investment Certificates (GICs) and high-yield dividend stocks.
The surge in interest rates has triggered a rise in bond yields that has led to a jump in rates offered by Canadian financial institutions on GICs. The rates have pulled back a bit in recent weeks alongside a rally in the bond market, but investors can still get non-cashable GICs paying more than 5% depending on the provider and the term.
At the same time, the share prices of great dividend-growth stocks are down considerably from the 2022 highs. Many now offer very attractive yields and continue to boost their dividend payouts. Telus (TSX:T), for example, trades near $24.50 at the time of writing compared to $34 at the peak last year.
The stock is off the 12-month lows but still looks oversold. Telus has increased the dividend annually for more than 20 years and currently provides a 6% dividend yield.
TC Energy (TSX:TRP) is another stock that has delivered annual dividend growth for more than two decades. The stock trades for close to $52 per share at the time of writing. That’s up from $45 in early October but still off the $74 the shares reached in 2022. TC Energy plans to raise the dividend by at least 3% per year over the medium term. Investors who buy at the current level can get a 7.1% dividend yield.
The bottom line on TFSA passive income
Investors can quite easily put together a diversified portfolio of GICs and dividend stocks that would generate an average yield of 6% right now, if not higher. On a TFSA of $30,000, this would generate $1,800 per year in Tax-Free passive income that won’t have to be shared with the Canada Revenue Agency. That works out to an average of $150 per month that can go straight into your pocket.
