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How to Use Your TFSA to Earn $2,377 Per Year in Passive Income

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Written by Amy Legate-Wolfe at The Motley Fool Canada

In the ever-evolving landscape of personal finance, Canadians are constantly on the lookout for ways to maximize their savings while minimizing their tax burden. This quest for financial efficiency has led many to explore the Tax-Free Savings Account (TFSA) as a vehicle for generating passive income and boosting their overall wealth.

In this article, we will delve into how you can utilize your TFSA to earn a substantial passive income while staying within the bounds of tax regulations.

Using a TFSA: Unlocking the benefits

The TFSA, introduced in 2009, has become an indispensable tool for Canadians seeking tax-efficient wealth accumulation. One of the key advantages of the TFSA is its contribution limit, which has steadily increased over the years. In 2023, the TFSA contribution limit stands at $6,500, bringing the maximum contribution space per person to a generous $88,000 since its inception. Furthermore, the TFSA limit increases in line with inflation, typically in increments of $500, ensuring that you can continue to grow your tax-free savings.

Perhaps the most enticing aspect of a TFSA is the tax treatment it offers. Interest, dividends, and capital gains generated inside the TFSA are entirely tax-free. Moreover, when you withdraw earnings from your TFSA, they do not count as income, meaning they won’t push you into a higher tax bracket. This unique tax advantage allows you to keep the full amount of passive income generated from your TFSA investments, directly benefiting your financial well-being.

An additional perk of the TFSA is the contribution room replenishment feature. Any money withdrawn from your TFSA during the year automatically opens up an equivalent amount of new contribution room in the next calendar year in addition to the regular TFSA limit. This flexibility provides you with the opportunity to adapt your investment strategy as your financial goals evolve.

Consider REITs: A prime opportunity for passive income

Real estate investment trusts (REITs) have emerged as prime candidates for generating long-term passive income within your TFSA. Healthcare REITs, in particular, have garnered attention due to their stability and growth prospects. These trusts invest in properties such as hospitals, medical offices, and other healthcare facilities, which tend to offer stable rental income and potential for capital appreciation.

Why NorthWest REIT could be the best choice

One standout player in the healthcare REIT sector is NorthWest Healthcare Properties REIT (TSX:NWH.UN). This REIT specializes in owning and managing high-quality healthcare real estate properties across Canada and internationally. Its operations have demonstrated steady growth, making it an attractive option for TFSA investors looking to build passive income.

According to the quarterly report for the three and six months ended June 30, 2023, NorthWest stock saw an impressive revenue increase of 13% and 16.6%, respectively. Adjusted funds from operations (AFFO) per unit decreased slightly from $0.20 in the second quarter (Q2) of 2022 to $0.13 in Q2 2023. This was primarily due to lower management fees and an increase in interest expense related to floating rate debt. Adjusting for the non-recurring component of management fees, AFFO would increase to $0.15 per unit for the quarter.

Operationally, the REIT’s portfolio delivered strong results. It achieved a 5.1% same-property NOI (SPNOI) growth on a year-over-year basis. Furthermore, the REIT’s portfolio boasts a robust occupancy rate of 96%. This was supported by a weighted average lease expiry of 13.5 years, with 83% of leases subject to rent indexation. This level of diversification across its 231 properties ensures that the REIT’s cash flow remains resilient.

The bottom line: Superb passive income with NorthWest stock

In conclusion, using your TFSA to generate passive income is a strategic move to grow your wealth while minimizing tax implications. NorthWest Healthcare Properties REIT stands out as a solid choice for TFSA investors seeking long-term, tax-free passive income. With its impressive revenue growth, high-quality portfolio, and a dividend yield of 12%, it presents an enticing opportunity to enhance your financial future. In fact, here is what you could earn from a $20,000 investment.

COMPANY

RECENT PRICE

NUMBER OF SHARES

DIVIDEND

TOTAL PAYOUT

FREQUENCY

NWH.UN

$6.73

2,972

$0.80

$2,377.60

Monthly

By harnessing the power of your TFSA and investing in reliable options like NorthWest Healthcare Properties REIT, you can work toward earning a substantial passive income while securing your financial well-being. So, take advantage of your TFSA, explore REITs like NorthWest, and embark on your journey to financial prosperity.

The post How to Use Your TFSA to Earn $2,377 Per Year in Passive Income appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has positions in NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

2023