How to Use Your TFSA to Double Your Annual Contribution

The Tax-Free Savings Account (TFSA) contribution limit for 2026 sits at $7,000. Most Canadians see that as a hard ceiling. But savvy investors know there’s a way to effectively double that annual contribution without breaking any rules.

The key is building a TFSA that generates growing tax-free income.

Turning your TFSA into a wealth-building machine

Grow your TFSA to a point where the income it produces each year equals or exceeds the annual contribution limit. That income can then be reinvested or combined with new contributions, multiplying the impact of your savings.

A Canadian who has been eligible for the TFSA since 2009 but never contributed would have a cumulative room of $109,000 through 2026. If that entire amount were invested today, the portfolio would need to generate a yield of just over 6.4% to produce $7,000 in annual tax-free income.

The key is moving beyond low-yield cash and embracing equity investments that offer capital appreciation. Finding companies with solid fundamentals, competitive advantages, and strong market trends can help your contribution grow faster than broader market indexes.

Why undervalued growth stocks belong in your TFSA

Growth stocks offer a different path to doubling your TFSA impact. Instead of generating $7,000 in annual income, you target stocks capable of doubling or tripling in value over several years.

Take BRP (TSX:DOO) as a prime example. The powersports manufacturer just reported stellar third-quarter (Q3) results that showcase why it deserves a spot in growth-focused TFSAs.

BRP delivered revenue of $2.3 billion in Q3, up 14% year over year. More importantly, normalized earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 21% to $326 million, while normalized earnings per share surged 33% to $1.59.

The company generated $320 million in free cash flow during the quarter, according to BRP’s Q3 2026 earnings call. That represents a massive improvement in cash generation, providing flexibility for debt reduction and potential shareholder returns.

The company raised full-year guidance, now expecting approximately $5 in normalized earnings per share (EPS) for fiscal 2026. This confidence stems from several factors working in BRP’s favour.

• BRP’s network inventory sits at healthy levels, down 17% versus last year and 6% below pre-COVID levels.
• The company made strong progress reducing excess inventory in key categories, with snowmobiles, personal watercraft, and three-wheel vehicles all showing double-digit reductions.
• Meanwhile, ORV network inventory remains healthy, down 8% year over year. This positions dealers with significant capacity to take on newly introduced products as production ramps up.
• Gross profit reached $541 million, representing a margin of 24.1%, up 210 basis points. The improvement came from higher capacity utilization, cost-reduction initiatives, lower sales programs, and favourable pricing.

BRP also strengthened its balance sheet by extending debt maturities and lowering interest rates. These actions are expected to generate financing cost savings of about $10 million in fiscal 2026 and $30 million annually from fiscal 2027 onwards.

During BRP’s recent Analyst Day, management unveiled its Mission 28 strategic plan targeting $9.5 billion in revenue and $8 in normalized EPS by fiscal 2028.

The plan focuses on capturing the company’s full powersport potential with several key initiatives.

• BRP aims to regain +30% market share in side-by-side vehicles and reach +25% in ATV markets.
• The company plans to add 100 dealers in the U.S. by fiscal 2028 to improve network coverage in underperforming markets.
• International expansion represents another major growth driver. BRP targets $2.5 billion in international revenue by fiscal 2028, supported by a new manufacturing joint venture in Vietnam that reduces tariff exposure in Asian markets.
• The company expects to deliver $350 million in lean value through operational efficiency initiatives.
• Manufacturing runs at roughly 60% capacity utilization today, providing significant room for margin expansion as volumes recover.

A TFSA stock that compounds wealth

A $7,000 investment in the TSX stock 12 months ago would be worth $12,300 today. Despite its stellar gains, BRP stock trades at a reasonable valuation, given its forecasted free cash flow expansion from $313.7 million in fiscal 2025 to $887 million in fiscal 2030.

If DOO stock is priced at 20 times forward FCF, it could more than double over the next three years.

The post How to Use Your TFSA to Double Your Annual Contribution appeared first on The Motley Fool Canada.

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More reading

• Air Canada: Why I Sold My Shares
• How to Generate $500/Month Tax-Free Using a TFSA
• A 7% Yield? Here’s the Question TFSA Investors Must Ask
• Air Canada: Buy, Sell, or Hold in February?
• This TSX Dividend Stock Could Pay You Every Month for Years

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Brp. The Motley Fool has a disclosure policy.