TFSA Buy Guide: 2 Stocks to Maximize Your Tax Savings

TFSA investing can be an excellent way to minimize your tax obligations on capital gains by buying and holding high-quality growth stocks in your account.

| More on:

The Tax-Free Savings Account (TFSA) could be considered the best registered investment account available to Canadians due to the tax savings opportunity it provides.

The Registered Retirement Savings Plan (RRSP) is an excellent tool to help you maximize your savings while minimizing your taxes. However, the account offers tax-deferred growth, and you must repay the tax when you eventually begin withdrawing from that account.

Any contributions you make to a TFSA are through after-tax dollars. While that means you cannot deduct your TFSA contributions from your taxable income, it results in tax-free wealth growth. The added flexibility of withdrawing amounts from your TFSA without incurring penalties or taxes makes it even more attractive for various financial goals.

Today, I will discuss two growth stocks that you could buy and hold in your TFSA to maximize your tax savings by eliminating capital gains tax to take advantage of the long-term growth potential that the assets offer.

Constellation Software

Constellation Software (TSX:CSU) could be one of the best companies to consider if you want to make the most of your TFSA’s tax-advantaged status for tax-free capital gains. The Toronto-based $43.05 billion market capitalization diversified software company buys acquires competitive and niche software businesses, helps them maximize their profitability, then harvests the free cash flows to acquire more companies.

Its successful strategy has helped Constellation Software deliver outstanding shareholder returns to its shareholders over the years. At writing, Constellation Software stock trades for $2,028.41 per share, and it is up by almost 2,100% in the last 10 years. While it might not maintain the same growth rate for the next 10 years, it could deliver solid returns as a long-term TFSA holding.

Brookfield Infrastructure Partners

Brookfield Infrastructure Partners (TSX:BIP.UN)(NYSE:BIP) is another excellent stock you could consider buying and holding in your TFSA for the long run to benefit from tax-free capital gains. The Toronto-based US$25.16 billion market capitalization company that engages in acquiring and managing infrastructure assets worldwide.

Over 70% of the company’s portfolio comprises assets with inflation-indexed contracts that can deliver cash flows that keep pace with rising inflation rates. The stock could also be considered an excellent hedge against inflationary environments. At writing, Brookfield Infrastructure Partners stock trades for $75.14 per share, up by 316% in the last 10 years.

Brookfield Infrastructure Partners stock might not offer the same high-growth rates as other growth stocks but offers reliable returns that could make it a suitable long-term TFSA holding.

Foolish takeaway

There are no tax liabilities on you for any interest, income, and capital gains you earn in a TFSA. You choose when you can withdraw from the account, and you do not have to report the withdrawals or pay taxes on them. These qualities make a TFSA an excellent financial instrument to help you achieve various short- and long-term financial goals.

Suppose that you are looking for a way to grow your wealth through capital gains but you want to minimize the impact of capital gains tax. In that case, you can use some of the available contribution room in your TFSA to invest in and hold growth stocks.

Brookfield Infrastructure Partners stock and Constellation Software stock could be two such stocks you could consider for your TFSA.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Infra Partners LP Units and Constellation Software.

More on Dividend Stocks

Make a choice, path to success, sign
Dividend Stocks

Is Fortis Stock a Buy for its Dividend Yield?

Fortis has increased the dividend for 51 consecutive years.

Read more »

Middle aged man drinks coffee
Dividend Stocks

Is Brookfield Stock a Buy, Sell, or Hold for 2025?

BAM stock recently jumped after beating earnings. But is it still a buy, or is it better to wait?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Top Canadian Utility Stocks to Buy in November

Are you looking for some top Canadian utility stocks to own? Here's a look at three must-have options for any…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is First Capital REIT a Buy for its 4.8% Yield?

First Capital is a REIT that offers you a tasty dividend yield of 4.8%. Is this TSX dividend stock a…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

TFSA Passive Income: 3 Stocks to Buy and Never Sell

Stocks like Fortis Inc (TSX:FTS) are worth holding long term.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

Canadian Utility Stocks to Buy Now for Stable Returns

Given their regulated business, falling interest rates, and healthy growth prospects, these three Canadian utility stocks are ideal for earning…

Read more »

nuclear power plant
Dividend Stocks

The Best Canadian Stocks to Buy and Hold Forever in a TFSA

TFSA investors can buy and hold these Canadian stocks to generate above-average, tax-free returns over the next decade.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

Is Telus Stock a Buy for its 7.3% Dividend Yield?

Although the 7.3% dividend yield Telus offers is attractive, it's just one of many reasons why the telecom stock is…

Read more »