The Tax-Free Savings Account (TFSA) is one of the most effective tools Canadians have for generating passive income. Distributions earned inside a TFSA are not taxed, and any withdrawals are added back on January 1st of the next calendar year as contribution room.
However, that makes the investment choice especially important. You want something that pays monthly, has a long operating history, and does not require constant monitoring. One Canadian option that fits that profile is Canoe EIT Income Fund (TSX: EIT.UN).
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What is EIT.UN?
EIT.UN is a closed-end income fund designed to deliver consistent monthly distributions. It holds an actively managed portfolio of income-producing equities, primarily 50/50 Canadian and U.S. dividend-paying companies. The mandate prioritizes income, with capital appreciation as a secondary objective.
The fund uses leverage to enhance cash flow. Management is permitted to lever the portfolio up to 1.2 times, meaning for every $100 of investor capital, up to $20 can be borrowed and invested. This increases income potential but also magnifies downside risk during market declines, so it’s not a free lunch.
As of January 8, EIT.UN trades at $15.90 per unit, while its net asset value is $16.39, representing a discount of roughly 3%. The fund pays a $0.10 monthly distribution. Ex-dividend dates typically fall around the 22nd of each month, with payments made around the 15th of the following month. The management fee is 1.1%, excluding leverage costs.
The passive income math
The income math is straightforward. Each unit of EIT.UN pays a $0.10 distribution per month, or $1.20 annually. To generate $420 per month, you would therefore need 4,200 units.
At a unit price of $15.90, that requires an investment of approximately $66,780. Held inside a TFSA, the entire $420 monthly distribution is tax-free. You can reinvest it, withdraw it, or use it to fund ongoing expenses without any tax reporting.
At current prices, the distribution rate is meaningfully higher than most dividend ETFs or savings products. That yield is supported by return-of-capital and leverage, which is why EIT.UN should be viewed as an income vehicle first, not a growth holding.
Still, with distributions reinvested, EIT.UN has still delivered a solid 10-year annualized total return of 12.9%. Though if growth is your primary objective, there are cheaper exchange-traded funds (ETFs) that may be more suitable.
