How to Use a TFSA to Bring In $500 a Month Completely Tax-Free

An extra $500 per month arriving completely tax free can go a lot further than many people think. That could cover groceries, utilities, a car payment, insurance, or simply create a bit more breathing room in your monthly budget. And because the income comes from a Tax-Free Savings Account (TFSA), none of those withdrawals increases your taxable income.

One way some Canadians try to generate that level of passive income is through Canoe EIT Income Fund (TSX:EIT.UN), a closed-end income fund that currently pays a monthly distribution of $0.10 per share. This is different than exchange-traded funds (ETFs) and dividend stocks, though, so read on for the specifics.

Doing the passive-income math first

The math itself is fairly straightforward. To generate $500 per month tax-free from EIT.UN in a TFSA, you would need the following:

500÷0.10=5,000500 \div 0.10 = 5{,}000

That means owning 5,000 shares of EIT.UN. Using a share price of $17.20 as of May 14, the total investment required would be this:

5,000×17.20=86,0005{,}000 \times 17.20 = 86{,}000

So, investors would need approximately $86,000 invested inside a TFSA in EIT.UN to target around $500 per month in tax-free income.

Hold up — understand what you’re buying first

Before chasing the yield, though, it is important to understand what EIT.UN actually is. This is an actively managed closed-end income fund holding a diversified portfolio of Canadian and U.S. stocks.

The fund is currently managed by Robert Taylor, a chartered professional accountant and chartered financial analyst, and the portfolio holds just under 50 stocks across sectors like financials, energy, and industrials.

One major reason the yield is so high is that the fund uses leverage. EIT.UN is permitted to borrow up to 120%, or 1.2 times of its net asset value (NAV), which can help amplify returns and yield during stronger markets but also increases downside risk during weaker ones.

The fund also charges a relatively high 1.1% management fee compared to low-cost index ETFs. Borrowing costs tied to leverage can create additional expense drag as well, on top of this.

Another detail investors should understand is that EIT.UN sometimes trades at a discount or premium to its NAV. In simple terms, the market price of the fund can differ from the value of the underlying portfolio holdings themselves. Most of the time, you can buy it at a slight discount, but there’s no guarantee it will ever close.

Historically, though, the strategy has delivered fairly strong total returns. With distributions reinvested, EIT.UN compounded at roughly 18.46% annualized over the past five years, but this is before taxes.

Of course, investors should remember that distributions are not guaranteed. The payout can fluctuate depending on market conditions, leverage costs, and portfolio performance. Principal losses are also possible.

The post How to Use a TFSA to Bring In $500 a Month Completely Tax-Free appeared first on The Motley Fool Canada.

Should you invest $1,000 in Canoe Eit Income Fund right now?

Before you buy stock in Canoe Eit Income Fund, consider this:

The Motley Fool Canada team has identified what they believe are the top 10 TSX stocks for 2026… and Canoe Eit Income Fund wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 … if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have over $18,000!*

Now, it’s worth noting Stock Advisor Canada’s total average return is 94%* – a market-crushing outperformance compared to 85%* for the S&P/TSX Composite Index. Don’t miss out on our top 10 stocks, available when you join our mailing list!

Get the 10 stocks instantly #start_btn6 { background: #0e6d04 none repeat scroll 0 0; color: #fff; font-size: 1.2em; font-family: 'Montserrat', sans-serif; font-weight: 600; height: auto; line-height: 1.2em; margin: 30px 0; max-width: 350px; text-align: center; width: auto; box-shadow: 0 1px 0 rgba(0, 0, 0, 0.5), 0 1px 0 #fff inset, 0 0 2px rgba(0, 0, 0, 0.2); border-radius: 5px; } #start_btn6 a { color: #fff; display: block; padding: 20px; padding-right:1em; padding-left:1em; } #start_btn6 a:hover { background: #FFE300 none repeat scroll 0 0; color: #000; } @media (max-width: 480px) { div#start_btn6 { font-size:1.1em; max-width: 320px;} } margin_bottom_5 { margin-bottom:5px; } margin_top_10 { margin-top:10px; }

* Returns as of April 20th, 2026

More reading

• Use a TFSA to Earn $1,000 a Month With No Tax
• Retirement Planning: How to Generate $2,000 in Monthly Income
• How to Use a TFSA to Generate $363 in Monthly Tax-Free Income

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.