TFSA 101: Earn $2,010 per Year Tax-Free

The Tax-Free Savings Account (TFSA) is an excellent place for Canadians to earn income (capital gains, dividends, and interest) and accumulate wealth. Just like its name suggests, all income earned in the account is tax-free. That means all the income stays with you.

TFSA: Keep more income, so you can invest for more income

The more income that stays with you, the more you can use to invest in stocks that generate more income. Invest in dividend stocks, earn dividends, re-invest dividends into more stocks, and repeat. It’s an attractive (and easy) way to compound capital over time.

Investors who were Canadian residents and over 18 years of age in 2009 can contribute a total of $95,000 to their TFSA. However, let’s say you have $45,000 (around half that amount) to contribute. That would still help you earn just over $2,000 per year in passive income.

Here’s a mini stock portfolio of three investments consisting of $15,000 each. Of course, having an even more diversified portfolio is preferred to spread out your investment risk, but this example demonstrates three ways you could earn passive income inside a TFSA right now.

Retail real estate for TFSA income

First Capital Real Estate Investment Trust (TSX:FCR.UN) is an interesting dividend stock: It presents a mix of income, value, and safety for a TFSA investor.

First Capital owns some of the highest-quality grocery-anchored retail properties in Canada. The majority of its tenants are staple providers. This has helped provide stable occupancy and rental income.

Likewise, its properties are largely urban-focused. This has supported strong rental rate growth. It also means it is sitting on a large base of valuable land assets that are yet to be optimized or developed.

First Capital yields 4.85% right now. If you invested $15,000 in the REIT today, you would earn $59 of monthly income (or $708 over the course of a year).

A top Canadian energy stock

Another dividend stock ideal for a TFSA is Canadian Natural Resources (TSX:CNQ). This company is one of the best dividend growth stocks in Canada. It just announced its 25th consecutive annual dividend increase. In that time, it has grown its dividend by a 21% compounded annual growth.

Not only is CNQ the largest energy producer in Canada but it is also one of the most profitable. Its free cash flow breakeven is around US$45 per oil barrel. It just became significantly larger with the acquisition of Chevron’s oil sand assets.

Today, Canadian Natural yields 4.15%. If you invested $15,000 in its stock, you would earn about $173 every quarter, or about $690 each year.

A residential REIT with U.S. exposure

BSR REIT (TSX:HOM.UN) is another stock for income and value in a TFSA. It is a great way to get exposure to the U.S. real estate market — but with a TSX-listed stock.

BSR operates a portfolio of apartment properties in some of the top growth regions in the U.S. sunbelt. This has supported strong rental rate growth, especially after the pandemic.

Unfortunately, new apartment supply in the region has temporarily slowed this dynamic. Fortunately, it looks like the market will turn in BSR’s favor in 2025 and beyond.

The REIT has a strong balance sheet, great assets, and a smart management team. It has used the market downturn to buy back a lot of stock. When rental growth recovers, it should drop quickly to the bottom line.

If you put $15,000 into BSR stock, you would earn about $51 monthly, or about $612 over a year.

Put it all together, and that’s $2,010 of annual passive income.