Passive Income: How to Make $600 Per Month Tax Free

Canadians on the hunt for passive income in a choppy market can look to generate $600/month with True North Commercial REIT (TSX:TNT.UN).

Ambrose O'Callaghan

Ambrose O'Callaghan graduated with a BA in Political Science from McMaster University. After that, he jumped into the banking world. He worked from the front line to an investment associate role. After that, he found a way to marry his experience and knowledge in the world of banking and finance to his love and passion for writing. Ambrose is a passionate believer in Warren Buffett's value investing model.

Published April 1, 2023 10:45 am EDT

| More on: TNT.UN

The establishment of a steady passive-income stream is a huge milestone for any investor. There are few things sweeter than unearned income. This is especially true when you can generate that income in a Tax-Free Savings Account (TFSA). That is exactly what we are going to set out to do today. In this hypothetical, we are going to snatch up True North Commercial REIT (TSX:TNT.UN) in our TFSA. With it, we will look to make $600 in tax-free, monthly passive income. Let’s jump in!

Why you should look to make passive income in this market

Growth-oriented investors have had their work cut out for them since the spring of 2022. The Bank of Canada (BoC) and many of its central bank peers in the developed world have responded to soaring inflation rates with an aggressive interest rate tightening policy. This has succeeded in cooling inflation from the red-hot rates we saw in the summer of 2022. However, it has also sparked a broader market correction and triggered a developing crisis for the global banking sector.

In this environment, it is nice to be able to rely on passive income. Indeed, the S&P/TSX Composite Index has failed to recover all its spring 2022 losses.

Here’s why True North REIT is a perfect target for us today

True North Commercial REIT is a Toronto-based real estate investment trust (REIT) that is focused on creating value for its unitholders through investment in high-quality commercial properties. Shares of this REIT have plunged 42% in 2023 as of close on March 28. It was hit hard after the release of its final batch of fiscal 2022 earnings. The stock has plunged 52% year over year.

The REIT announced a 50% distribution reduction in its fourth-quarter (Q4) and full-year 2022 earnings report. Predictably, this sparked a sharp sell off. The reduction, combined with the strategic sale of two recently vacated Ontario properties, aims to bolster True North’s financial strength going forward. This REIT still boasts a strong yield and is a worthy target for passive-income investors. Its shares last had a price-to-earnings ratio of 19, putting it in solid value territory compared to its industry peers.

How to generate $600/month in tax-free passive income

This REIT closed at $3.46 on March 27. For our hypothetical, we are going to be utilizing almost all of the cumulative room available for a TFSA in 2023. That cumulative room rose to $88,000 this year.

We can snatch up 24,000 shares of True North REIT for a purchase price of $83,040. As an aside, it is worth noting that investors should not look to pour their entire TFSA room into a single security. Instead, this hypothetical works to illustrate how you can generate passive income in a TFSA. Ideally, your portfolio would be much more diversified to provide long-term protection.

The REIT now offers a monthly distribution of $0.025 per share. That represents a very strong 8.5% yield. The purchase will enable us to generate tax-free passive income of $600 per month going forward.