Use a TFSA to Make $500 in Monthly Tax-Free Income

Wringing your hands over the passive income math? This TSX monthly income fund makes planning much easier.

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Key Points
  • EIT.UN is a closed-end fund that uses active stock selection and modest leverage to generate high monthly income.
  • At a closing price of $16.64 and a $0.10 monthly payout, you would need about $83,200 invested to generate $500 a month.
  • Held inside a TFSA, that income is fully tax-free, which makes planning much simpler than in a non-registered account.

If your goal is to live off passive income, I think the Tax-Free Savings Account (TFSA) is the ideal place to hold it. In a non-registered account, the tax treatment depends on the source of the income, and that can get messy fast.

Eligible dividends are taxed differently from capital gains. Return of capital is treated differently again. Ordinary income and foreign dividends each have their own rules, too.

Inside a TFSA, none of that matters. What you receive is what you keep. That makes income planning much easier. Where investors tend to get tripped up is with the payouts themselves.

A lot of exchange-traded funds (ETFs) have variable distributions, so the amount you receive each month can change. Timing is another issue. Most dividend stocks pay quarterly, and if you only want monthly payers, you often end up concentrated in a small group of royalty trusts and Real Estate Investment Trusts (REITs).

There is one interesting exception, though. It is not an ETF, and it is not a stock in the traditional sense. It is a closed-end fund called the Canoe EIT Income Fund (TSX: EIT.UN).

Here is why I like it as a TFSA passive income option, and how much you would need to invest to generate $500 a month tax-free.

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.

Source: Getty Images

What is the Canoe EIT Income Fund?

EIT.UN is a closed-end fund. That matters because, unlike an ETF, it does not create and redeem units every day to keep its market price tightly aligned with the value of the underlying portfolio.

Instead, it trades with a fixed pool of units. That means the market price can trade at either a premium or a discount to net asset value, or NAV. As of April 7, 2026, the fund closed at $16.64, while its NAV was $16.92. So at that moment, you were able to buy it at a small discount to the value of the underlying portfolio.

The fund itself is actively managed by Rob Taylor. This is not a passive index product. He and his team build a concentrated portfolio of mostly Canadian and U.S. dividend-paying stocks, looking for durable businesses and long-term growers.

Another important feature is leverage. The fund can use up to 1.2 times leverage, meaning for every $100 of investor capital, it can borrow up to another $20 to invest more. That can boost returns and income, but it also increases risk during downturns.

You are also paying for that active approach. The base management fee is 1.1%, which is not cheap. On top of that, the use of leverage adds borrowing costs, so the total drag is higher than the stated management fee alone.

That said, the historical results have been strong. Over the last 10 years, the fund has delivered an annualized total return of 14.5%. So while it is expensive, it has at least earned the right to be taken seriously.

How much do you need to invest to make $500 a month?

Now let us do the math step by step. The Canoe EIT Income Fund currently pays $0.10 per unit per month. On an annualized basis, using the most recent payout, the yield currently works out to about 7.2%.

If your target is $500 per month, the first step is to divide your target income by the monthly distribution per unit: $500 ÷ $0.10 = 5,000 units. So you need 5,000 units of EIT.UN.

Next, multiply that by the current market price as of April 7, 2026: 5,000 × $16.64 = $83,200 That means you would need about $83,200 invested in the fund to generate $500 per month in distributions.

And because this is inside a TFSA, that full $500 is tax-free. No adjustment for dividend tax credits. No worrying about return of capital. No after-tax math. It just lands in the account, clean and simple.

That is the big appeal here. Of course, remember that the distribution is not guaranteed forever, and the unit price can fluctuate. This is still an equity-based, leveraged closed-end fund. It is built for income, but it is not low risk.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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