If you’re building a passive-income fortress inside your Tax-Free Savings Account (TFSA), you’re likely hunting for two things: income reliability and tax efficiency.
Let’s talk about the tax part first, because it’s where most Canadian investors trip over their own shoelaces. Income funds and Real Estate Investment Trusts (REITs) are wonderful creatures that pay no corporate tax as long as they shovel substantially all their profits into unitholders’ pockets. That’s fantastic, but it means the Canada Revenue Agency (CRA) comes knocking on your door. Those delicious monthly distributions are taxed as ordinary income.
The solution isn’t to avoid REITs and income trusts; it’s to house them properly. You stash them in a TFSA, hold long term, and let the compounding magic happen without a single dollar leaking to the CRA.
This brings us to a tiny Canadian REIT with an outsized 5.4% distribution yield and a track record that deserves a spot in the tax-sheltered corner of your stock portfolio: Canadian Net Real Estate Investment Trust (TSXV: NET.UN).
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Canadian Net REIT: The little passive income powerhouse
Trading under $7 per unit, Canadian Net REIT isn’t as popular among retail investors as industry giants like RioCan REIT or Choice Properties REIT. It’s a small-cap player on the Toronto Stock Exchange’s Venture Exchange (TSXV) with a market cap hovering around $131 million. It’s still tiny, but sometimes it pays to be the minnow rather than the whale.
Canadian Net REIT’s portfolio is comprised of 97 single-tenant retail properties spanning about 1.5 million square feet of gross leasable area (GLA). Retail real estate puts bread on the table — literally. The tenant roster is anchored by grocery giants Loblaws (18% of NOI) and Sobeys (16%), alongside Walmart and Metro as major tenants.
Invest for steady financials and growing TFSA payouts
There were a few numbers in the REIT’s 2025 financials that should make income investors lean in closer.
Rental revenue bumped up 7% year-over-year, but net operating income (NOI) leaped 10%. Even better, adjusted funds from operations (AFFO) per unit – the true lifeblood of a REIT’s distribution – climbed a cool 12% during the past year.
And here’s the stat that should let you sleep soundly at night: The payout ratio based on the AFFO dropped from 61% in 2024 to just 55% in 2025. The REIT is earning nearly twice as much cash as it needs to pay you your monthly dividend. That’s a massive cushion in an industry where some Canadian REITs are skating on thin ice with above 90% AFFO payout ratios.
Canadian Net REIT has paid distributions every single month since 2012 without a skip. The annual distribution has grown from $0.13 per unit in 2012 to $0.348 today. The only year they held the distribution flat was in 2020 – and if you remember COVID-19 pandemic lockdowns of 2020, you’ll forgive any retail landlord for being a little cautious.
Any risks to consider with this TFSA stock?
There’s always a catch, but on Canadian NET REIT, the income investing risks aren’t that unsettling.
The trust’s Quebec concentration is a significant factor to digest. Roughly 80 of the 97 properties are in the Quebec province. That’s a provincial economic bet, whether you intended to make one or not.
Secondly, consider the single-tenant gamble. The REIT’s portfolio is 100% occupied, a rarity even among the best industrial REITs, with a weighted average lease term of 5.9 years. But with single-tenant properties, if a Loblaws or Sobeys decides to pack up and leave when the lease matures, that’s a 100% vacancy on that asset instantly.
And lastly, let’s acknowledge the venture exchange discount. Being on the Toronto Stock Exchange’s Venture Exchange means less liquidity and a bit more volatility than the big boards. Of course, it also means there’s potential upside if (or when) the small REIT graduates to the TSX main board.
The Foolish bottom line
Canadian NET REIT is a monthly income investment that could deliver for Canadian investors looking to deploy cash in a TFSA stock and simply forget about it for a decade. It offers a compelling mix of a sustainable 5.4% yield and a management team that clearly respects the dividend.
Its tenants sell groceries and gas – the last things Canadians stop buying during recessions. That steady cash flow, compounded tax-free inside a TFSA, could be how you turn a modest $7 stock into a meaningful passive income stream.
