Canadian savers are using their self-directed Tax-Free Savings Account (TFSA) to build investment portfolios that can generate tax-free passive income to complement pension earnings in retirement.

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GICs or dividend stocks
The current market conditions are providing investors with an opportunity to get decent rates from Guaranteed Investment Certificates (GICs), as well as attractive yields from top TSX dividend stocks.
GIC rates offered by Canada Deposit Insurance Corporation (CDIC) members on non-cashable certificates are now available in the 3.4% to 4.2% range, depending on the issuer and the term. These rates are comfortably above the 3% inflation rate in Canada that was reported for July, so it makes sense to consider holding some GICs in a TFSA income portfolio. The invested capital is 100% safe, as long as the GIC is from a CDIC member and the amount is within the $100,000 limit. To get the best rates, investors have to lock up the funds for the duration of the GIC, so there is a liquidity trade-off to consider.
Dividend stocks offer more flexibility. The shares can be sold at any time to access the invested funds in the event of a need to withdraw the money. Dividend yields available from some companies are higher than rates offered on GICs. In addition, dividend increases boost the yield on the initial investment. Stock prices, however, can drop below the purchase price and dividends can be reduced, or even eliminated, if a company gets into a situation where it has to protect its cash flow
Investors who want to hold dividend stocks should consider companies that have good track records of raising the distribution through difficult economic conditions.
Enbridge (TSX:ENB), for example, increased its dividend in each of the past 31 years.
A deeper dive
The share price has dropped from $80 a few weeks ago to $69 at the time of writing, giving up some of the big gains achieved over the past two years. Investors who missed the previous rally can now get a dividend yield of 5.6%.
Enbridge should be able to extend its dividend-growth streak. The company’s $41 billion secured capital program is expected to boost adjusted earnings and distributable cash flow by 5% annually over the medium term. Enbridge has a large presence in the United States, and much of the growth is focused south of the border, so the stock provides investors with good exposure to the U.S. economy through a leading Canadian stock.
Rising international demand for Canadian and American energy products bodes well for Enbridge. The company owns an oil export terminal in Texas and is a partner on the Woodfibre liquefied natural gas (LNG) export facility being built on the coast of British Columbia.
At the same time, natural gas use is expected to soar in Canada and the United States in the next few years as new gas-fired power generation facilities are built to provide electricity to AI data centres. Enbridge’s extensive natural gas transmission network and portfolio of natural gas utilities puts it in a good position to benefit from the trend.
The bottom line
The cumulative maximum TFSA contribution space per person is $109,000 in 2026. This means a Canadian couple would have $218,000 in potential combined TFSA room right now to create an income portfolio. In the current market conditions, it is quite easy to build a portfolio of GICs and dividend stocks to get an average yield of 4.3%. This would generate $9,265 per year in tax-free passive income. That’s about $772 per month.