How to Use Your TFSA to Average $1,500 Per Year in Tax-Free Passive Income

Understand how the TFSA can provide tax-free income in retirement while preserving your OAS benefits and managing taxable income.

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Key Points
  • Strategic TFSA Use for OAS Maximization: Utilizing the TFSA for tax-free passive income can help prevent OAS clawbacks due to 2025 taxable retirement income over $93,454, maintaining maximum OAS payouts by reducing taxable income.
  • Building a TFSA Passive Income Portfolio: Investing in high dividend yield stocks like Cogeco Communications and SmartCentres REIT can provide an annual tax-free income of approximately $1,500.

The Tax-Free Savings Account (TFSA) can be a great tool to invest in retirement passive income. The payouts from the TFSA investments will be tax-free and not affect your Old Age Security (OAS) pension.

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The importance of the TFSA’s tax-free passive income

If your 2025 taxable income is above $93,454, the Canada Revenue Agency (CRA) will claw back a portion of your OAS payout from July 2026 to June 2027. If your retirement income is near this threshold and you need more money, consider withdrawing tax-free passive income from the TFSA to preserve your OAS payout. The maximum OAS payout till June 2026 is $743.05 per month, and it is added to your taxable income.

Considering that all types of retirement income, from Canada Pension Plan (CPP) to OAS to Registered Retirement Savings Plan (RRSP) withdrawals, are taxable, OAS clawback is likely. While you can’t control CPP and OAS, you can control RRSP and TFSA withdrawals.

How much money to withdraw from which account is a strategic decision and can significantly reduce your tax liability and increase your retirement income. However, this is a math you have to do with your financial advisor. Until then, your TFSA can keep accumulating wealth for a sizeable passive income.

Put your TFSA to work while you figure out the payouts

A straightforward way to earn TFSA passive income is to invest in dividend stocks. And if you are looking for immediate payouts, high-yield stocks are a better option.

Cogeco Communications

Cogeco Communications (TSX: CCA) offers a 6% dividend yield on a payout of 30% of its adjusted free cash flow. The economics have changed for the Canadian telecom sector as new regulations have made prices competitive and margins thinner. While BCE and Telus are spending billions on building artificial intelligence (AI) and fibre infrastructure, Cogeco is spending on leasing fibre infrastructure. Cogeco entered the wireless market with Cogeco Mobile in August 2025 and is catering to both the US and Canadian markets.

To compete with BCE and Telus, Cogeco is offering customers free activation, no commitment pressure or surprise overages, and a residential internet subscription package for those seeking bundled service discounts. Looking at Cogeco’s dividend history, it has been growing at an average annual rate of 10% for the last 13 years. However, the growth rate slowed after the price war from 10% to 7% and could slow further.

SmartCentres REIT

SmartCentres REIT (TSX: SRU.UN) offers a 6.2% dividend yield on a payout of 86.4% of adjusted funds from operations. The REIT has the backing of its largest tenant, Walmart, which not only brings footfall but also attracts retail tenants with high creditworthiness. Until 2016, SmartCentres was focusing on Walmart-anchored stores. It launched mixed-use properties in 2016 to make city centres near Walmart stores.

Around 14% of its total property portfolio is under development. Such a large amount of a portfolio under development is temporarily blocking cash flow. But as new projects come online, cash flow from sales and rent will drive SmartCentres portfolio value and rental income.

SmartCentres’ 21-year history of paying regular monthly dividends makes it a good investment for retirement passive income.

How to use a TFSA to average $1,500 per year in tax-free passive income

A 50-50 allocation of dividend income would require 190 shares of Cogeco, which annually pay a $3.95 dividend per share, and 405 units of SmartCentres REIT, which pay $1.85 distribution per share. At their current share price, these shares will cost you $24,636.

StockAverage stock price in JuneDividend per shareNumber of shares boughtTotal investmentTotal dividend amount
CCA$65.50$3.95190$12,445.00$750.50
SRU.UN$30.10$1.85405$12,190.50$749.25
Total$24,635.50$1,499.75

If you have some investments in tech stocks, now may be a good time to book profits and convert them into passive income. For instance, Air Canada stock is a sell at its current price of $23, and so is Celestica at $537.

Final thoughts

The best way to build a passive income portfolio in a TFSA is by rebalancing profits from growth stocks, as it can make the most of tax-free growth and withdrawal.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool recommends Air Canada, Celestica, Cogeco Communications, SmartCentres Real Estate Investment Trust, TELUS, and Walmart. The Motley Fool has a disclosure policy.

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