Many Canadians still treat the Tax Free Savings Account (TFSA) like a glorified bank account. If I ran the CRA, the first thing I’d do is rename it the “Tax Free Income Account,” because the real power of a TFSA is the ability to generate completely tax-free cash flow, month after month, with zero consequences for your benefits or tax bracket.
For retirees, this avoids the clawbacks that hit withdrawals from other accounts, and for younger investors, it creates a compounding machine with no tax drag. If you want to adopt this mindset early, one option stands out: the Canoe EIT Income Fund (TSX:EIT.UN) in a TFSA can pay you every month like clockwork, entirely tax-free. Here’s how it works.
What is EIT.UN
EIT.UN is a closed-end fund, meaning it has a fixed number of units and does not create or redeem shares daily the way an exchange-traded fund does. This structure means the fund can trade at either a premium or a discount to its net asset value depending on investor demand. Right now, units trade slightly below NAV, which effectively lets buyers pick up its underlying portfolio at a small bargain.
The portfolio holds around 40 Canadian and U.S. stocks, generally split about 50/50, and is run by an active management team. The fund can also use up to 1.2 times leverage, which allows it to boost returns by borrowing modestly against its assets. However, it’s not the cheapest fund out there, with a 1.1% management fee.
EIT.UN dividends
The hallmark of the fund is its fixed, longstanding $0.10 per-unit monthly distribution, which is unusually predictable in today’s market. To receive the next payout, you need to own units before and up to the ex-dividend date, usually around the 20th of each month, with payment landing on the 15th of the following month.
The distribution is a mix of capital gains, return of capital, and dividends, which can get complicated in a non-registered account. This is why keeping it in a TFSA is the simplest approach—everything is tax-free, and you never have to sort out the income types. Each unit you own generates the same reliable $0.10 every month, which you can reinvest for compounding or withdraw as steady income.
The Foolish takeaway
If you’re a younger investor, EIT.UN might not be the perfect long-term compounding vehicle, even though its reinvested distribution track record has been surprisingly solid. But if you’re older, there’s nothing wrong with shifting gears and setting up your portfolio to pay you reliably.
A few hundred dollars a month, completely tax-free inside a TFSA, can meaningfully improve your quality of life. There’s no trophy for dying with the biggest account balance. Life is unpredictable, so put your money to work now and enjoy the comfort and stability you’ve earned.
