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TFSA: 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Source: Getty Images

Written by Karen Thomas, MSc, CFA at The Motley Fool Canada

As of today, the tax-free savings account, or TFSA, can shelter up to $95,000 from taxes, reflecting the cumulative TFSA contribution limit. This is a significant advantage that’s available to investors – and one that’s worth taking advantage of fully, if you can.

Here are 2 stocks that are well-suited for the TFSA, as I believe that they have strong capital gains potential. And wouldn’t it be nice to shelter those capital gains from taxes?

CGI: A tech stock fit for your TFSA

As one of Canada’s most successful technology companies, CGI Inc. (TSX:GIB.A) has really branched out into the world. Today, CGI is a $28 billion IT services giant that has a globally diversified business, with clients from many different business verticals.

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What truly sets CGI apart from the rest is its long-term success in consolidating the IT services industry, as well as its superior strategic, operational, and financial discipline. This has been the driving force for the company’s success. And CGI’s stock has reflected this. Over the last 15 years, the stock price has rallied more than 1,200%.

To get an idea of the magnitude of the tax savings that the TFSA offers, let’s assume that we invested $5,000 into CGI back in 2009 when the TFSA was first introduced. Back then, CGI shares were trading around $10.34, and this meant that $5,000 could buy 480 shares. Today, this would be worth $65,600, for a capital gain of approximately $60,600. Half of this amount ($30,300) would be added to your income and taxed at your marginal income tax rate. So, the tax savings would be as much as $10,000.

This gives us only a glimpse of the potential money saved through the TFSA, as it assumes we invested only $5,000 in 2009. As I mentioned earlier, today we can invest up to $95,000 into our TFSA. And CGI remains a solid option.

Looking ahead, CGI continues to see strong acquisition opportunities, as the pipeline remains robust. In its latest quarter, CGI reported double-digit revenue growth and strong margins. Revenue in the quarter increased 11.4%, as Western Europe and the United Kingdom/Australia posted growth rates of 28% and 11%, respectively.

Tourmaline: A natural gas play

The second Canadian stock to buy for your TFSA, in my view, is Tourmaline Oil Corp. (TSX:TOU). Tourmaline is Canada’s largest natural gas producer, and benefits from a strong asset base and strong long-term natural gas fundamentals.

In fact, demand from artificial intelligence data centres and liquified natural gas from around the globe are increasing. And analysts expect this increase to be sustained for the long run. This shift toward natural gas is a secular trend that’s supported by environmental concerns, energy supply and security concerns, and its low cost.

Tourmaline stock has rallied significantly in the last few years as investors have become increasingly aware of the positive outlook. In the last 10 years, Tourmaline stock is up 365%. While this energy stock remains cyclical, as all commodity stocks are, the long-term trend is positive. And this is likely to drive Tourmaline stock higher, giving rise to significant capital gains.

With the TFSA contribution limit currently at $95,000, we have the ability to shelter significant amounts of money from taxes. Sheltering the Canadian stocks discussed in this article in a TFSA will allow us to avoid a large capital gains tax, thereby increasing our return on investment.

The post TFSA: 2 Canadian Stocks to Buy and Hold for Tax-Free Gains appeared first on The Motley Fool Canada.

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Fool contributor Karen Thomas has a position in CGI and Tourmaline. The Motley Fool recommends CGI and Tourmaline Oil. The Motley Fool has a disclosure policy.

2024