The key is building a TFSA that generates growing tax-free income.
Turn your TFSA into a wealth-building machine
Grow your TFSA to a point where the income it generates 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 has never contributed would have a cumulative headroom of $109,000 until 2026. If that entire amount were invested today, the portfolio would need to generate a return of just over 6.4% to generate $7,000 in tax-free income annually.
The key is to move beyond cash with low returns and embrace stock investments that offer capital growth. If you find companies with solid fundamentals, competitive advantages and strong market trends, your contribution can grow faster than broader market indices.
Why undervalued growth stocks belong in your TFSA
Growth stocks offer another path to doubling your TFSA impact. Instead of generating $7,000 in annual income, focus on stocks that can double or triple in value over several years.
To take BRP (TSX:DOO) as a good example. The powersports manufacturer has just reported stellar third quarter (Q3) results, showing why it deserves a place in growth-oriented TFSAs.
BRP achieved revenues of $2.3 billion in the third quarter, an increase of 14% year-on-year. More importantly, normalized earnings before interest, taxes, depreciation and amortization (EBITDA) rose 21% to $326 million, while normalized earnings per share rose 33% to $1.59.
According to BRP’s Q3 2026 earnings call, the company generated $320 million in free cash flow during the quarter. That means a huge improvement in cash generation, providing flexibility for debt reduction and potential shareholder returns.
The company raised full-year guidance and now expects normalized earnings per share (EPS) of around $5 for fiscal 2026. This confidence comes from several factors working in BRP’s favor.
- BRP’s network inventory is at healthy levels, down 17% from last year and 6% below pre-COVID levels.
- The company made great progress in reducing excess inventory in key categories, with snowmobiles, personal watercraft and three-wheel vehicles all posting double-digit declines.
- 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 increases.
- Gross profit was $541 million, representing a margin of 24.1%, an increase of 210 basis points. The improvement was due to higher occupancy rates, cost savings initiatives, lower sales programs and favorable 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 approximately $10 million in fiscal year 2026 and $30 million annually beginning in fiscal year 2027.
At BRP’s recent Analyst Day, management unveiled its Mission 28 strategic plan, targeting $9.5 billion in revenue and $8 normalized earnings per share by fiscal 2028.
The plan focuses on unlocking the company’s full motorsports 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 US by fiscal year 2028 to improve network coverage in underperforming markets.
- International expansion is another important growth driver. BRP targets international sales of $2.5 billion in fiscal 2028, supported by a new manufacturing joint venture in Vietnam that reduces exposure to tariffs in Asian markets.
- The company expects to realize $350 million in lean value through operational efficiency initiatives.
- Production is currently at approximately 60% capacity utilization, providing significant room for margin expansion as volumes recover.
A TFSA share that multiplies wealth
A $7,000 investment in TSX stock 12 months ago would be worth $12,300 today. Despite the huge gains, BRP’s stock trades at a reasonable valuation given its expected free cash flow expansion from $313.7 million in fiscal 2025 to $887 million in fiscal 2030.
If DOO stock price advances 20 times FCF, it could more than double in the next three years.
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