TFSA Investors: The CRA Is Watching These Red Flags

A Tax-Free Savings Account (TFSA) feels like a private little money bunker, but the Canada Revenue Agency (CRA) still cares how you use it because the tax-free benefit can get abused. If your account starts to look like a business, a loophole, or a sloppy mess of contributions, the CRA can assess special taxes that wipe out the whole point of having a TFSA. Knowing the red flags helps you protect your tax-free growth, avoid ugly surprise bills, and keep your investing simple.

Red flags to watch

The first red flag is the classic one: over contributions. The rules sound straightforward, but people get tripped up by timing, withdrawals, and assuming their CRA room number updates instantly. The CRA can charge a 1% tax per month on the highest excess amount in the account for each month the excess stays there, and it can take months before you even get notified because issuers report after year-end.

The second red flag is contributing while you are a non-resident. You can still have a TFSA as a non-resident, but contributions made while you are non-resident can trigger that same 1% per month tax. This catches people who move for work, travel long term, or assume a quick return means it “doesn’t count.”

The third red flag bucket is anything that looks like gaming the system. That includes situations such as prohibited or non-qualified investments, advantages, and certain swap-style transactions between you and your TFSA. The CRA can apply steep taxes here, including a 100% tax on an “advantage,” and other special taxes tied to non-qualified or prohibited holdings. These are the landmines that show up when someone tries to turn a TFSA into a tax hack instead of an investment account.

Consider BIP

Brookfield Infrastructure Partners (TSX:BIP.UN) sits on the opposite end of that spectrum. It owns and operates a mix of essential infrastructure businesses across utilities, transport, midstream, and data. Think boring in the best way: pipes, networks, terminals, and increasingly, the digital backbone that keeps data moving. That mix matters in 2026 because investors still want inflation-linked cash flow, and the world keeps spending on power, connectivity, and reliability.

The latest earnings update gives you the real reason income investors stay interested. In Q3 2025, Brookfield Infrastructure reported net income of $440 million and funds from operations (FFO) of $654 million, or $0.83 per unit, up from $0.76 per unit a year earlier. It declared a quarterly distribution of $0.43 per unit, and it reported it as a 6% increase versus the prior year, with a yield now at about 5%. Right now, here’s what the stock could bring in from a $7,000 investment alone.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENTBIP.UN$47.90146$2.36$344.56Quarterly$6,993.40

The outlook looks tied to the two big tailwinds of capital projects and data growth. Management pointed to the commissioning of over $1 billion in new capital projects from its backlog over the last 12 months, and it highlighted a framework agreement with Bloom Energy tied to powering data centres and artificial intelligence (AI) facilities, including a 55 MW project expected to complete in Q4 2025.It also said the data segment’s FFO jumped 62% year over year in the quarter, which tells you where the growth energy sits right now. On valuation, focus more on FFO growth, distribution growth, and balance sheet management than on a single earnings multiple.

Bottom line

BIP.UN is an easy way to stay away from CRA red flags as it practically encourages good TFSA behaviour. You can buy it, hold it, collect the distribution, and let compounding do its thing. All without frequent trading, sketchy “maximizer” tactics, or complicated transactions. It’s a plain-vanilla TSX-listed investment with business fundamentals you can follow quarter to quarter. This keeps your TFSA boring, compliant, and still rewarding over the long run.

The post TFSA Investors: The CRA Is Watching These Red Flags appeared first on The Motley Fool Canada.

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More reading

• 2 Stocks That Could Turn $100,000 Into $1 Million
• Here’s the Average Canadian TFSA at Age 55
• Here Are My Top 4 TSX Stocks to Buy Right Now
• This Dividend Stock Is Set to Beat the TSX Again and Again
• How to Use Your TFSA to Double Your Annual Contribution

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.