Canadian taxpayers claim the basic personal amount (BPA) during tax season. The amount of the non-refundable tax credit changes every year, and all individuals earning below the BPA pay $0 federal income tax. For 2023, the BPA is 15,000, so those earning above it get a partial reduction of taxes.
Paying taxes is painful to the pocket, but it’s a moral obligation of employed and self-employed Canadians. Taxes help the federal, provincial, and territorial governments and support various programs for the people.
The penalties and consequences of not filing tax returns are harsh. But why risk it when legitimate ways exist to earn income and pay less taxes? This article focuses on only one tax strategy, allowing you to earn monthly income completely tax-free.
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Efficient tax strategy
Utilizing the Tax-Free Savings Account (TFSA) and following the rules frees you from the Canada Revenue Agency (CRA). If you don’t over-contribute and hold income-producing assets like dividend stocks, you’ll pay zero taxes on all interest, investment income, and capital gains.
Calling the TFSA a tax policy gem is an understatement because no investment vehicle can compare on its excellent features. Unused contribution room carries over to the following year, and withdrawals are tax-exempt. Moreover, the TFSA has no required maturity age. You can maintain the account and contribute for life.
Monthly dividends
The payout frequency of most TSX dividend stocks is every quarter, although a select few pay monthly dividends. Whitecap Resources (TSX:WCP) in the energy sector is one of them. At $9.01 per share, you can partake in the ultra-high 8.1% dividend. Your $7,000 TFSA limit in 2024 can purchase 777 shares and generate $47.25 tax-free monthly income.
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Whitecap commits to sustainable free funds flow through its sustainable long-term growth. The $5.5 billion oil-weighted growth company boasts a premium asset base in its core areas or divisions (East and West). However, funds flow in Q3 2023 decreased to $466 million from $546.8 million in Q3 2022 due to lower commodity prices.
Nonetheless, Whitecap has paid $1.7 billion in dividends to date and has never missed a monthly cash dividend payment since December 30, 2019.
Ideal complement
Exchange Income Corporation (TSX:EIF) is an ideal complement to Whitecap Resources if you need to diversify. At $45.50 per share, the industrial stock pays an attractive 5.8% dividend. This $2.1 billion company’s strength comes from two core business segments: Aerospace & Aviation and Manufacturing.
TFSA investors should be happy to know that EIC has paid monthly dividends since 2004 and increased the payout 17 times over 19 years. In Q3 2023, EIC achieved new record highs in revenue ($688 million) and free cash flow ($117 million). Net earnings increased 1.1% to $49.5 million.
Its CEO, Mike Pyle, said the strong aggregate results highlight the power of EIC’s diversified model. Some subsidiaries produced favourable, if not solid, results, while others operated in a more challenging environment, including inflationary pressures.
Achieve your financial goals
Canadians can earn $500 in tax-free income through their TFSAs. However, because of the annual contribution limit, it would take time to achieve the goal. You must max out your TFSA limit yearly for eight years while accumulating Whitecap Resources and EIC shares.
