Retirees and other Tax-Free Savings Account (TFSA) income investors are searching for ways to get better returns on their investments without taking on too much risk.
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TFSA Limit 2025
The TFSA limit in 2025 is $7,000. This brings the cumulative maximum TFSA contribution space to $102,000 per person. Retired couples, therefore, have as much as $204,000 in TFSA room they can use to generate passive income.
Interest, dividends, and capital gains earned inside a TFSA on qualifying investments are tax-free. This means the full value of the profits can go straight into your pocket as tax-free income or can be fully reinvested. Seniors who collect Old Age Security (OAS) pensions don’t have to worry about TFSA income triggering the OAS pension recovery tax. The CRA doesn’t use TFSA income when calculating net world income, which is used to determine the 15% OAS clawback that kicks in when net world income is above the threshold amount. In the 2025 tax year, the number to watch is $93,454.
For people who collect good work pensions along with full CPP and OAS, it isn’t hard to hit that level. As such, it makes sense in most cases to max out the TFSA contribution room before holding income-generating investments in taxable accounts.
GICs or dividend stocks
Rates offered on non-cashable guaranteed investment certificates (GICs) are currently in the 3% to 4% range, depending on the term and the provider. This isn’t as lucrative as the 6% rates that were briefly available in 2023, but they are still comfortably above the current rate of inflation in Canada. The no-risk aspect of a GIC (as long as it is within the $100,000 limit and is issued by a Canada Deposit Insurance Corporation member) makes it attractive. On the downside, non-cashable GICs lock up the funds for the term of the certificate. In addition, the rate that is available on renewal might be lower than when the money was first invested.
Dividend stocks come with capital risk. The share price can fall below the purchase price and dividends sometimes get cut if the company runs into financial difficulties. That being said, top dividend-growth stocks normally bounce back from corrections. Dividend growth boosts the yield on the initial investment, and stocks can be sold easily to access the invested capital if needed.
Enbridge (TSX: ENB) is a good example of a dividend-growth stock with an attractive yield. The board has increased the dividend annually for the past 30 years. Acquisitions and organic developments boost revenue and cash flow.
Enbridge is working on a $26 billion capital program that will raise distributable cash flow by about 3% per year over the medium term. Investors who buy ENB stock at the current price can get a dividend yield of 5.9%.
The bottom line on top TFSA investments for passive income
In the current market, investors can quite easily put together a diversified portfolio of GICs and dividend stocks to get an average yield of 4%. On a TFSA of $102,000, this would produce $4,080 per year. A retired couple could, therefore, generate $8,160 per year in tax-free income at this rate of return.
