The Motley Fool

How to Earn $200/Month and Avoid Paying Taxes to the CRA

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Are you looking for a way to boost your monthly income and not worry about having to pay extra taxes? With a Tax-Free Savings Account (TFSA), you can shield dividend income or capital gains that you earn on your investments from the Canada Revenue Agency (CRA). If you’ve never contributed to a TFSA before and have been eligible every year since its existence, you could protect up to $69,500 worth of investments from the taxman. And next year, the TFSA limit is going up by another $6,000. That’s incredibly valuable to investors, because as long as you have contribution room in your TFSA, you can put investments in there that can potentially add to your income, and, at the same time, you won’t have to worry about paying any taxes.

And dividend stocks are great options to put inside a TFSA, since they can generate consistent streams of cash flow for your portfolio, none of which will be taxable. One attractive option today is Inovalis Real Estate Investment Trust (TSX:INO.UN). The real estate investment trust (REIT) holds a portfolio of office properties in France and Germany and can be a great way for investors to diversify and effectively bet on the strength of the economies of those two countries. In the company’s third-quarter update, Inovalis said that its rent collection was “near normal,” stating that 94% of rents for its French assets for the period were received. Its German properties were doing even better, collecting nearly 100% of rent.

Stability is an important consideration when looking at dividend stocks, and REITs, in particular, which depend on the strength of their tenants. That can help give investors the confidence that the REIT will able to continue making dividend payments for the foreseeable future. Today, Inovalis pays its investors $0.06875 every month for each unit that they own. That yields approximately 9.4% per year. If you were to invest about $25,500 into the stock, you would collect approximately $2,400 each year. On a monthly basis, you’d be receiving $200. And all that money wouldn’t be taxable as long as the investment was held within a TFSA.

Inovalis stock is currently trading below book value and at a very modest four times its earnings. Not only is it a great dividend stock, but it’s also a solid value investment. Part of the reason for the cheap price and high yield is that Inovalis stock has fallen 18% this year, as investors have been hesitant to buy up REITs given the economic uncertainty all over the world due to the coronavirus pandemic.

Bottom line

Inovalis is an example of one high-yielding stock you can invest in to help boost your monthly cash flow. There are many other possible investments to choose from that can generate recurring income. What’s important to remember is to put those income-generating investments inside your TFSA if you have the room to do so, as that will give you free money that you don’t have to worry about paying taxes on. It’s a great way to put your savings to work and strengthen your overall financial position.

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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 David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Inovalis REIT.

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