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How to Earn Big TFSA Income That the Canada Revenue Agency Can’t Tax

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Image source: Getty Images

Written by Daniel Da Costa at The Motley Fool Canada

For many investors, one of the biggest considerations before buying stocks for their portfolio and allocating their capital to different sectors and industries is the potential taxes they may have to pay on their investment. That’s why the Tax-Free Savings Account (TFSA) is such a significant tool that Canadians have to help earn tax-free income.

The impact taxes can have on your returns, especially over the long haul, can be astronomical. This is due in large part to the power of compound interest.

While taxes may not seem like they cut into your profits all that much in a single year, over time, as all the taxes you pay add up and as the rest of your capital continues to snowball and grow exponentially, it becomes clear just how much potential profit you would lose.

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Therefore, it’s essential that before investors buy stocks outside of a registered account like the TFSA, they first use up all their contribution room and maximize their returns by investing in the best possible stocks to grow their TFSA.

What are the best stocks to buy in a TFSA to maximize your income?

Buying stocks in your TFSA is a huge opportunity, but it’s essential to take full advantage of this opportunity by buying the best stocks possible.

This means stocks that can grow rapidly and consistently for years to come. Whether it’s dividend-growth stocks or just a high-quality business in the midst of its growth stage, finding stocks that can grow the fastest ultimately means that you can save as much tax as possible.

With that in mind, though, you also don’t want to buy stocks that are too risky. Higher-risk stocks could end up falling in value, causing you to lose not just the capital you initially invested but also your highly valuable TFSA contribution room.

So, although you want to buy stocks that will grow significantly that you would otherwise have to pay a tonne of tax on, you also want to make sure the stocks are high enough quality that you don’t run the risk of seeing major losses on your investment.

That’s why one of the best stocks you can buy for your TFSA today is Dollarama (TSX:DOL).

Dollarama is an impressive long-term growth stock

Dollarama is an ideal investment for your TFSA for several reasons, most importantly, though, due to its astronomical growth.

In fact, over the last decade, investors who have owned Dollarama have seen a massive 630% total return on their investment or a compound annual growth rate (CAGR) of 22%.

It’s one of the best stocks in Canada to buy and hold for the long haul and the perfect stock for your TFSA. It’s reliable and defensive since it offers discounted goods to consumers and typically benefits from worsening economic conditions as more consumers look to save money and buy goods as cheaply as possible.

Furthermore, it’s a stock that has proven for over a decade how consistent it can be at not only attracting more consumers to shop at its stores but also executing its own growth strategy, opening new locations, improving its merchandising and introducing new, higher price points.

The one knock against Dollarama stock at the moment is that it trades at a premium. However, Dollarama has also proven time and again that it deserves that premium valuation, especially considering it’s grown at a CAGR of 22% for over a decade.

Therefore, if you’re looking to maximize the long-term potential of your TFSA, it’s essential to buy the highest-quality Canadian stocks possible and hold them for the long haul.

This way, you don’t risk losing your valuable TFSA contribution room and can grow your money as much as possible without having to pay a cent in taxes to the Canada Revenue Agency.

The post How to Earn Big TFSA Income That the Canada Revenue Agency Can’t Tax appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Dollarama?

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Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in August 2023... and Dollarama wasn't on the list.

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See the 5 Stocks * Returns as of 8/16/23

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Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2023