Use a TFSA to Earn $1,000 a Month With No Tax

With all the taxes, inflation, and overall economic uncertainty, Canadians have no choice but to supplement their active income streams with additional income. Building passive income has become critical to tackling life amid inflation and to achieve long-term financial goals. Fixed-income assets do not generate substantial returns due to relatively low key interest rates. Instead, building a portfolio of monthly dividend-paying stocks can offer you the kind of returns you might need.

Today, we will look at two monthly dividend-paying stocks that you can consider investing in when you start building a self-directed portfolio to create a passive income stream.

Pizza Pizza Royalty

Pizza Pizza Royalty Corp. (TSX:PZA) is a $536.3 million market capitalization TSX stock that is in the quick-service restaurant industry. PZA owns and franchises restaurants under its Pizza 73 and Pizza Pizza brands, generating revenue through royalties from franchisees. The company does not directly own and operate most of these locations, providing PZA with an asset-light business model that generates regular revenue.

The company’s management consistently makes efforts to make improvements that can help it provide consistent monthly distributions to shareholders. Between its ongoing growth initiatives and solid business model, it can be an excellent investment for monthly passive income. As of this writing, it trades for $16.08 per share and pays investors $0.0775 per share each month.

SmartCentres REIT

SmartCentres Real Estate Investment Trust (TSX:SRU.UN) is a Real Estate Investment Trust (REIT) that’s fully integrated with almost 200 properties in its portfolio nationwide. The trust trades on the TSX like a stock, through which you can generate monthly income. SmartCentres REIT owns and operates a portfolio of properties that include retail, office, self-storage, and purpose-built rental properties.

The trust generates monthly revenues from the properties in its portfolio. In turn, it distributes $0.15417 per month to investors for each unit or share they own. SmartCentres REIT has a resilient tenant base, with 95% of its tenants operating at a regional or national level. The high-quality tenant base, backed by a 98.6% occupancy rate, makes its monthly distributions sustainable.

Foolish takeaway

If you build a portfolio of high-quality monthly dividend-paying stocks in a Tax-Free Savings Account (TFSA), you can enjoy the passive income without incurring taxes on the monthly distributions or on any capital appreciation over time.

Here is how you can generate a hypothetical $500 per month in tax-free passive income by investing in PZA stock and SRU.UN stock. However, it is important to remember that this is only a hypothetical example. You must never allocate too much capital to one or two assets. Diversifying your capital across several assets can help you mitigate unnecessary risk.

TickerRecent PriceNumber of SharesDividend Per Month Per ShareTotal InvestmentPayout Per MonthPZA$16.086452$0.0775$103,748.16$500.03SRU.UN$27.193244$0.15417$88,204.36$500.13Total Monthly Payout$1,000.16

The post Use a TFSA to Earn $1,000 a Month With No Tax appeared first on The Motley Fool Canada.

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* Returns as of February 17th, 2026

More reading

• 2 High-Yield Dividend Stocks You Can Buy and Hold for a Decade
• How to Structure a $50,000 TFSA for Practically Constant Income
• Got $10,000? Buy This Dividend Stock for $56.50 in Monthly Passive Income
• A Perfect TFSA Stock: A 6.8% Yield With Constant Paycheques
• Use a TFSA to Earn $500 a Month With No Tax

Fool contributor Adam Othman 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.