Retirees and other income investors are wondering which Canadian investments might be good for generating returns on their $7,000 Tax-Free Savings Account (TFSA) contribution limit in 2025.
TFSA limit in 2025
The TFSA limit in 2025 will be $7,000. This is the same as it was for 2024. Anyone who has qualified to make TFSA contributions since the inception of the plan in 2009 will have up to $102,000 in cumulative TFSA contribution space in 2025.
Capital gains, interest, and dividends earned on qualifying Canadian investments held inside the TFSA and reinvested or removed as income are exempt from income taxes. This is helpful for anyone who earns enough to pay income tax. Seniors, in particular, can benefit.
The income from TFSA investments does not count toward the net world income calculation the Canada Revenue Agency uses to determine the Old Age Security (OAS) pension recovery tax, also known as the OAS clawback. When net world income tops a minimum threshold, a 15% OAS clawback is triggered for every dollar earned above that level. In the 2025 income year, the number to watch is $93,454. This means a senior with net world income of $113,454 would see their total OAS reduced by $3,000 for the July 2026 to June 2027 payment period.
When possible, it normally makes sense for retirees to hold income-generating investments inside a TFSA before investing inside a taxable trading account.
Good TFSA investments for passive income
Investors who don’t want to take on any risk and are comfortable with lower returns should probably stick with Guaranteed Investment Certificates (GICs). The rates offered on GICs have dropped over the past year from a peak of 6% to a current range of 3-4%, depending on the term and the provider. That’s still above the current rate of inflation.
The downside for GICs is that to get the best rates, you have to lock in the funds for the term of the certificate. In addition, the amount paid remains fixed, and there is a good chance that the rates offered on renewal will be lower, given the expected downward trend in interest rates.
Investors who can handle some market volatility and are looking for higher returns might consider buying good dividend-growth stocks. Owning shares comes with risks. The share price can fall below the purchase price, and dividends are not 100% safe. That being said, steady dividend growth raises the yield on the initial investment and stocks can be sold at any time to access the funds in the case of an emergency.
Enbridge (TSX:ENB) is a good example of a dividend stock that raises the payout at a steady pace and provides an attractive yield. The board has increased the dividend in each of the past 29 years. Investors who buy ENB stock at the current level can get a dividend yield of 6%.
Enbridge grows through acquisitions and development projects that boost revenue and cash flow to support dividend increases.
The bottom line on TFSA passive income
The best mix of GICs and dividend stocks is different for every investor. In the current market conditions, however, investors can quite easily put together a diversified portfolio of GICs and top dividend stocks to get an average yield of 4.5-5.5% on their TFSA investments.
