The federal government introduced the Tax-Free Savings Account (TFSA) in 2009 to reinforce the Registered Retirement Savings Plan (RRSP). However, unlike the RRSP, Canadians of all income levels, or even those without proof of income, can open a TFSA. The after-tax dollar contributions are not tax-deductible, although investment income, capital gains, and interest earned within the account are tax-free.
TFSA account holders derive a host of benefits from the general-purpose savings vehicle. The Canada Revenue Agency (CRA) assigns the annual contribution limits and tracks the utilization by users. However, there’s no need to worry about not maximizing the yearly limits. Any unused contribution rooms carry over to the following year.
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Money-making engine
As of January 1, 2025, the TFSA cumulative contribution room is $102,000. The $7,000 limit this year may seem small, but the TFSA is more than a tax-advantaged account. You can turn a $10,000 available contribution room into a money-making engine.
If you’re an income-focused investor or a retiree looking to boost your pension, the income stream from dividend investing can be for life. Additionally, the power of compounding works most effectively in a TFSA because the growth of money is tax-free. Holding dividend stocks and reinvesting dividends is also a good strategy.
TFSA staple
All Canadian big banks beat earnings estimates for the third quarter (Q3) of fiscal 2025, although the standout was Canadian Imperial Bank of Commerce (TSX: CM). With its $100.3 billion market capitalization, CIBC is the country’s fifth-largest lender. If you invest today, the share price is $107.91, while the dividend yield is 3.6%.
In the three months ending July 31, 2025, CIBC’s net income increased 3.3% to $2.1 billion compared to Q3 fiscal 2024. The core business segments, Canadian Personal & Business Banking (+17%) and Canadian Commercial Banking & Wealth (+19%), reported the highest year-over-year growth in net income.
Despite a robust capital position and balance strength, its president and CEO, Victor G. Dodig, warns that global trade tensions may result in slower growth and higher inflation.
The dividend track record of 157 years confirms that CIBC is a rock-solid investment, especially in a TFSA. Assuming you invest $10,000, the money will generate $82.50 every quarter. If you opt to reinvest the dividends and not collect them, the investment will compound to $16,371.70 in 15 years.
Perfect complement
Fortis (TSX: FTS), Canada’s second dividend king, is the perfect complement to CIBC if you need to diversify. The $34 billion electric and gas utility company earned the status owing to 51 consecutive years of dividend increases. Currently, it has nine regulated utilities in Canada, the U.S., and the Caribbean.
Since the business or investments are 100% regulated, Fortis boasts a low-risk profile. According to management, the new $26 billion five-year capital plan will support the annual dividend growth of 4% to 6% through 2029. (6.5% compound annual growth rate) by 2029, up from $39 billion in 2024.
FTS trades at $67.59 per share, and the dividend offer is 3.64%. Given that the yield is slightly higher than CIBC’s, the income potential is $91 every quarter.
Recurring tax-free income
The TFSA is a certified money-making engine regardless of the investment amount. Holding high-quality stocks like CIBC and Fortis is a sure-fire way to earn recurring, tax-free income.
