Should we funnel rental income into TFSAs? - MoneySense

Should we funnel rental income into TFSAs?

Kyle wants to use TFSAs to hold rental income for the short term but is it worth the effort?


My business partner and I have a number of rental properties that generate income monthly. That money sits in a low interest savings account until we have enough for another down payment. We both have lots of room in our TFSAs and wonder if it would be advantageous to funnel the rental income into TFSAs, invest in ETFs, pull the money out when a new property comes along, then re-contribute and keep that process going?

— Kyle, Edmonton, AB

A: Yes. You can do this. But that doesn’t mean you should. If we assume that the properties are personally held, not corporately owned, and that you are both Canadian citizens only, your plan is technically possible.

If you put the money into ETFs exposed to the stock market, you may find the volatility impedes your ability to cash out when you want to buy your next property. Also, you’ll likely pay a trading fee to buy the ETFs, which makes it harder to justify buying them monthly, in small amounts.

Kurt Rosentreter is a senior financial advisor with Manulife Securities adds that if once you take money out of your TFSA you won’t be able to re-contribute back to the TFSA until the following year. That time delay is a negative, as is the risk you’ll be taking with your capital.

I’d do some math to see if those negatives outweigh by the positive of tax-free gains on the ETF investment. Specifically, how much money do you expect to invest in ETFs, at what trading fee, for how long, and at what return? You can then estimate the tax you’ll avoid and see if the complexity is worth it to you.

Me? I put a lot of value on simplicity. I’d spend my energy visiting open houses, scouring the MLS website obsessively, and developing a proprietary tenant assessment tool which I would then take public on NASDAQ, making billions, so I would never have to fix another toilet in my life.

Bruce Sellery is a frequent guest on financial television shows and author of Moolala.

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