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

By holding high-quality Canadian dividend stocks that offer attractive yields inside a Tax-Free Savings Account (TFSA), you can collect regular income while keeping every dollar you earn.

One effective strategy to generate a reliable, worry-free income is to build a diversified TFSA portfolio. Investors should focus on financially strong companies that have a history of paying regular dividends. Including quality stocks that pay dividends monthly can help create a more consistent income stream.

So, if your goal is to earn $500 a month in completely tax-free income, here’s a look at how much you may need to invest and two Canadian dividend stocks that could help you get there.

Monthly income stock #1

With an attractive yield of 6.2%, monthly cash distributions, and a long record of dependable payouts, SmartCentres REIT (TSX:SRU.UN) stands out as an attractive option for TFSA investors seeking tax-free income.

Its distributions are driven by a portfolio of high-quality retail and mixed-use properties that continue to generate solid net operating income and funds from operations (FFO). The REIT’s strategically located real estate benefits from robust leasing activity and strong occupancy levels, which drive NOI and FFO. Moreover, its high-quality tenant base supports reliable rent collections and helps minimize earnings volatility.

At the end of the first quarter, SmartCentres reported an in-place and committed occupancy rate of 97.6%, reflecting the resilience of its property portfolio. Occupancy is likely to remain strong as leasing demand continues to be healthy. The REIT has already completed approximately 80% of its 2026 lease renewals, achieving an 11.5% increase in renewal rents, excluding anchor tenants. Additionally, rent collections remained exceptionally strong at approximately 99%.

Looking forward, SmartCentres appears well-positioned for sustainable growth. Its ongoing portfolio optimization initiatives, large development pipeline, and an extensive portfolio of underutilized land provide multiple avenues to grow its FFO, strengthening its ability to maintain its future distributions.

Monthly income stock #2

For TFSA investors seeking tax-free monthly income, Firm Capital Mortgage Investment Corporation (TSX: FC) could be a solid bet. The financial services company focuses on providing short-term bridge financing and conventional mortgage lending across residential and commercial real estate markets, targeting segments that are often overlooked by Canada’s major financial institutions.

By concentrating on specialized lending opportunities in underserved niche markets, Firm Capital has built a business model that emphasizes steady income and resilient cash generation. Its diversified mortgage portfolio and disciplined underwriting approach have enabled the company to navigate varying economic conditions while maintaining consistent operating performance.

Firm Capital has distributed monthly dividends continuously since 2013. At its current monthly dividend of $0.078 per share, the stock offers a yield of more than 7.7%. In addition to its regular distributions, the company has rewarded investors with special year-end dividends.

Looking ahead, its well-diversified loan portfolio, the relatively short duration of its mortgage investments, and a growing fee-based income provide a solid foundation for supporting future payouts.

Overall, Firm Capital Mortgage Investment Corporation’s attractive dividend yield, proven history of monthly distributions, and conservative operating strategy make it a compelling income stock.

Earn over $500 in monthly tax-free dividend income

SmartCentres REIT and Firm Capital Mortgage Investment Corporation pay dividends monthly and offer attractive yields.

Based on their current dividend payouts, an investment of approximately $87,000, split between these two income-generating stocks, could produce over $500 in tax-free monthly income when held inside a TFSA.

CompanyRecent PriceNumber of SharesDividendTotal PayoutFrequencySmartCentres REIT$30.061,447$0.154$222.84MonthlyFirm Capital$12.103,595$0.078$280.41MonthlyPrice as of 07/15/2026

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 SmartCentres Real Estate Investment Trust right now?

When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 10 percentage points.*

They revealed what they believe are 10 TSX Stocks for 2026… and SmartCentres Real Estate Investment Trust made the list – but there are 9 other stocks you may be overlooking.

Don’t miss out on our Top 10 TSX Stocks for 2026, available when you join our mailing list!

Get the 10 stocks instantly #start_btn5 { 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_btn5 a { color: #fff; display: block; padding: 20px; padding-right:1em; padding-left:1em; } #start_btn5 a:hover { background: #FFE300 none repeat scroll 0 0; color: #000; } @media (max-width: 480px) { div#start_btn5 { font-size:1.1em; max-width: 320px;} } margin_bottom_5 { margin-bottom:5px; } margin_top_10 { margin-top:10px; }

* Returns as of July 6th, 2026

More reading

• Today’s Perfect TFSA Stock: 6.2% Monthly Income
• A Simple Way for Canadians to Earn $500 a Month Tax-Free From a TFSA
• The Best High-Yield Dividend Stocks to Buy Right Now for Unbeatable Income
• How to Structure a TFSA With $14,000 for Lifelong Monthly Income
• How $20,000 Across 4 TSX Stocks Can Deliver $1,000 in Passive Income

Fool contributor Sneha Nahata has no position in any of the stocks mentioned. The Motley Fool recommends SmartCentres Real Estate Investment Trust. The Motley Fool has a disclosure policy.