There is no shortage of self-proclaimed passive income gurus telling Canadians they need to buy rental properties, build online businesses, flip houses, trade options, or chase double-digit-yielding investments to generate cash flow. For most people, there is a much simpler place to start: maximize your Tax-Free Savings Account (TFSA).
That does not mean the TFSA is always the best account for every investor. Higher-income Canadians can often benefit substantially from the upfront tax deduction offered by a Registered Retirement Savings Plan (RRSP). Even so, for many Canadians, the TFSA deserves to be prioritized because of its unmatched flexibility and tax treatment.
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Why I prefer the TFSA for income
The biggest advantage of the TFSA is that withdrawals are completely tax-free. You can take money out whenever you want, for any reason, without creating taxable income. Even better, the amount you withdraw is added back to your contribution room the following calendar year, allowing you to recontribute later.
An RRSP works very differently. Contributions generate a tax deduction today, but every withdrawal is treated as taxable income. That can push retirees into higher tax brackets or increase the likelihood of income-tested benefit reductions later in retirement. For investors who expect to draw regular income from their portfolio, that flexibility gives the TFSA a meaningful advantage.
There is one notable exception. The United States does not recognize the TFSA under the Canada-U.S. tax treaty. As a result, U.S. dividend-paying stocks and U.S.-listed exchange-traded funds (ETFs) generally lose 15% of their dividends to foreign withholding tax when held inside a TFSA.
For investors heavily focused on U.S. dividend income, a Registered Retirement Savings Plan (RRSP) may be the better home for those investments. For everything else, I still think the TFSA is one of the best accounts available.
One income investment to consider
For investors looking to generate regular tax-free cash flow, Canoe EIT Income Fund (TSX: EIT.UN) is worth considering.
Unlike a traditional ETF, EIT.UN is an actively managed closed-end fund that owns a diversified portfolio of Canadian and U.S. stocks across sectors including financials, energy, industrials, and other large-cap businesses.
One of its biggest attractions is its managed distribution policy. The fund currently pays a monthly distribution of $0.10 per unit (6.93% yield as of July 8, 2026), making it popular among retirees and income-focused investors seeking consistent cash flow.
Investors should also understand the tradeoffs. EIT.UN charges a relatively high 1.1% management fee and can employ leverage of up to approximately 1.2 times its net asset value, increasing both potential returns and risk.
Another detail worth noting is valuation. As of June 9, the fund traded at $17.32 while its net asset value stood at $17.98, meaning investors were buying the portfolio at a modest discount. While discounts can create opportunities, there is no guarantee they will close.
