Money is something that motivates almost everyone. Despite the age-old adage that money doesn’t buy happiness, it is the number one incentive that drives hard work and productivity in our economy. Because money is so crucial in our society, so is how you can earn that income and report it to the CRA, either passively or actively through employment.
Since everyone wants money, but most people prefer not to work on it, passive income is great.
Passive income becomes even more appealing when you can find ways to earn it tax-free. That way, you keep all that money you earn to yourself and can avoid paying it to the CRA.
So, with that in mind, here is the best way to earn tax-free income.
CRA: You can earn tax-free income in your TFSA
The TFSA is created to give Canadians a head start when it comes to savings. It also allows Canadians to invest their money and keep all of the proceeds from those investments without having to pay tax to the CRA.
This means that if you buy stocks and they skyrocket, then sell, you keep all that profit to yourself. This is not the case if you are investing outside of a registered account such as a TFSA.
So, because the TFSA is so important, we want to maximize its potential. However, what better way to make money than buying and selling stocks? The answer is passive income.
Canadians can focus on buying high quality, dividend paying stocks to earn passive income. Plus, if you make sure you do this in your TFSA, it will be tax free.
Essentially, all you have to do is start saving your money and researching the investments.
You’ll want to find a top-notch business with resilient operations. That way, you can count on the company to keep paying its profits to shareholders.
Once you’ve done that, you can start making your investments and watch the passive income flow into your account, knowing that you don’t owe the CRA any of that money.
The perfect share for your TFSA
One stock to consider buying today that would be ideal for your portfolio is Shaw Communications (TSX: SJR.B) (NYSE: SJR).
Shaw is an ideal stock to hold in your TFSA and save on CRA tax for several reasons. It is first and foremost a telecommunications company – an extremely defensive industry. This is important because you can buy Shaw as a long-term investment and have the peace of mind knowing you can count on the business to keep running smoothly.
Shaw has always had that quality, but it has never been more important than this year through the coronavirus pandemic. So far in 2020, its sales have actually increased year on year, which shows how little affected the business.
Along with his defensive attributes, Shaw also has a ton of growth potential. The company is already working hard to develop its wireless segment, and long-term 5G technology will give Shaw a massive growth avenue.
Investors will witness the inevitable growth through both a sharp increase in shareholder value and an eventual increase in its stable monthly dividend. That dividend is earning 5.2% today, which is pretty good considering all the other important qualities you get with an investment in Shaw.
Shaw is a perfect example of stocks to hold in your TFSA. This way, you can earn both dividend income and capital gains income, and you won’t have to pay tax on that income to the CRA.
At the end of the line
Taxes are something that, apart from being painful to pay, also play an important role in the performance of your investments over the long term. That’s why it’s essential that you do what you can to limit what you pay the CRA.
Silly contributor Daniel Da Costa doesn’t have a position in any of the stocks mentioned.