Canadians get to add an additional $7,000 to the TFSA (Tax-Free Savings Account) in 2025. That is an extra $7,000 that can be used to generate passive income with zero tax consequence.
Inside the TFSA, you don’t pay tax when you sell your investments or collect dividends. You don’t pay tax when you withdraw from the TFSA. This makes it the most flexible registered account in Canada.
REITs are a great asset for earning passive income in a TFSA
If you are looking to earn monthly passive income from your TFSA investments, real estate investment trusts (REITs) are a very interesting place to look. REITs collect rents from their tenants monthly.
Since REITS are required to pay out most of their profits for tax purposes, they tend to distribute their excess cash monthly as it comes in. As a result, REITs can be a great place to collect income.
REIT stocks have been beaten down over the past six months and many are trading at their cheapest valuations in years. Consequently, contrarian investors can pick up a nice stream of income and the potential for capital upside as these REITs eventually revert to their mean.
If you are looking for some ideas on the REIT space, here are two Canadian stocks to consider.
A Canadian REIT with US assets for TFSA passive income
BSR REIT (TSX:HOM.UN) is an excellent stock for a TFSA if you want specific exposure to the United States. If you want to hedge a weak Canadian dollar, holding this stock for US dollar rents is a great idea.
BSR owns a mix of quality, garden-style apartments in Dallas, Houston, Austin, Oklahoma City, and Little Rock. Its Texas markets are some of the fastest-growing regions in North America.
With recent new supply being absorbed, BSR should start to see nice organic rent growth in 2025. Likewise, it just announced its first new acquisition in a couple of years. The REIT has a strong balance sheet and great management team.
BSR stock yields 4.5%. A $7,000 TFSA investment in BSR REIT would earn $26.33 monthly or $316 annually.
A retail REIT with a +5% yield
First Capital REIT (TSX:FCR.UN) is a good bet for value, growth, and income. It operates some the highest quality urban-focused, grocery-anchored properties in Canada.
Grocery-anchored retail is attractive because of the resilience of its tenants in various economic conditions. Even in recessions people need groceries, dollar stores, banks, medical offices, pharmacies and value retailers. These make up a majority of First Cap’s tenants.
Given its high-quality locations, it has been earning high single-digit rental rate growth in the past couple of years. This has translated into good AFFO (adjusted funds from operations) per unit growth.
Its stock is down 10% in the past three months. The stock trades at a substantial discount to its private market value. The market doesn’t yet recognize its substantial land bank of development opportunities.
First Capital REIT stock yields 5.3% right now. If you put $7,000 of TFSA cash into First Capital REIT, you would earn $30.85 monthly or $370 annually.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| BSR REIT | $17.72 | 395 | $0.0667 | $26.33 | Monthly |
| First Capital REIT | $16.80 | 416 | $0.074 | $30.85 | Monthly |
Prices as of January 17, 2025
