Best Passive Income Ideas in Canada: What Each Pays and How It Is Taxed

Passive income here means money that keeps coming in after the work or the investment is done: interest, fund distributions, rent, and sales of something you made once. “Best” depends on what you have more of, money or time, and on how much risk to your capital you accept. GICs and savings accounts need little ongoing work beyond reinvesting; with ETFs, rental property and digital products, the money or time you put in is at risk. For income you earn by the hour, see best side hustles in Canada and how to make money online; renting out space short term is covered under Airbnb hosting below.

How the options compare

The table sets the options side by side on what they need up front, how much work continues, what can go wrong and how the income is taxed.

Option	Money needed up front	Ongoing work	Can the money you put in fall?	How the income is taxed outside a TFSA or RRSP
GICs	The issuer’s minimum ($100 at EQ Bank, $1,000 at Oaken)	Reinvesting at maturity	No, while the institution pays; deposit insurance covers eligible deposits up to its limit	Interest, taxed in full
Savings accounts	No minimum balance for the TFSA savings accounts at EQ Bank ($0) and Oaken ($0)	None	No, on the same terms as GICs	Interest, taxed in full
Dividend ETFs	The price of one unit	None	Yes, the unit price moves with the market	Shown on each fund’s T3 slip
Covered-call ETFs	The price of one unit	None	Yes	Shown on each fund’s T3 slip
REIT ETFs	The price of one unit	None	Yes	Shown on each fund’s T3 slip
Rental property	A down payment plus closing costs	Tenants, repairs and bookkeeping, unless you pay a manager	Yes, and a mortgage magnifies the change	Rent minus deductible expenses (Form T776)
Digital products, books, courses	Mostly your time	Updates, marketing, customer questions	Your time, more than your money	Business income (Form T2125)

Interest: GICs and savings accounts

A GIC pays a fixed rate for a set term, and a savings account pays a rate the institution can change at any time. Posted rates at two online institutions:

Institution	1-year GIC	3-year GIC	5-year GIC	TFSA savings account	Posted as of
EQ Bank	3.70%	4.15%	4.30%	1.75%	November 6, 2026
Oaken	3.90%	4.35%	4.50%	3.00%	November 6, 2026

Both post the same GIC rates for registered (TFSA, RRSP) and non-registered GICs. Rates change without notice; best GIC rates and best HISA rates compare more institutions. At a CDIC member, eligible deposits are insured up to $100,000 per insured category; are GICs safe explains the categories and the credit-union equivalents.

A GIC ladder splits the money across terms so part of it comes due every year or two, which spreads out the risk of renewing everything at a low rate. GIC laddering covers how to set one up.

$30,000 split equally across Oaken’s posted 1-, 3- and 5-year GICs, interest paid yearly, at the rates posted on November 6, 2026.

Term	Amount	Rate	Interest in the first year
1 year	$10,000	3.90%	$390
3 years	$10,000	4.35%	$435
5 years	$10,000	4.50%	$450
Total	$30,000		$1,275

Dividend, covered-call and REIT ETFs

An ETF pays out the dividends (or rent, for a REIT fund) earned by what it holds. The distribution yield is the payout as a percentage of the unit price, as each provider publishes it. A covered-call ETF also sells call options on its holdings, which adds option income to the payout but gives up part of any rise in the stocks; see covered-call ETFs.

ETF	Fund	Distribution yield	As of
VDY	Vanguard FTSE Canadian High Dividend Yield Index ETF	2.43%	October 31, 2026
XEI	iShares S&P/TSX Composite High Dividend Index ETF	3.25%	October 31, 2026
ZWC	BMO Canadian High Dividend Covered Call ETF	6.36%	October 30, 2026
ZWB	BMO Covered Call Canadian Banks ETF	6.70%	October 30, 2026
XRE	iShares S&P/TSX Capped REIT Index ETF	4.47%	November 11, 2026

A yield is not a promise: a fund can cut its distribution, and the unit price can fall while the payout continues. Best dividend ETFs and REIT ETFs compare the funds in more detail.

How much money a target income takes

The amount needed is the yearly income divided by the yield. The table uses three of the rates and yields above, before tax, and assumes they stay where they are, which market yields don’t.

Money needed for a monthly income, at Oaken’s posted 5-year GIC rate and at the distribution yields of VDY and ZWC shown above.

Monthly income	Yearly income	Oaken 5-year GIC (4.50%)	VDY (2.43%)	ZWC (6.36%)
$250	$3,000	$66,667	$123,457	$47,170
$500	$6,000	$133,333	$246,914	$94,340
$1,000	$12,000	$266,667	$493,827	$188,679
$2,000	$24,000	$533,333	$987,654	$377,358

A higher yield needs less money for the same income, but a covered-call fund gives up part of the rise in its stocks to pay it, and no ETF payout is fixed the way a GIC’s interest is.

Rental property

Owning a rental needs the most money up front of these options, and it comes with continuing work as a landlord. The down payment rules for a property you won’t live in are on investment property mortgages. Rent has to cover the mortgage, property tax, insurance, repairs and empty months before anything is left over.

A hypothetical unit renting for $2,200 a month, with the costs below and 5% of the rent set aside for vacancy.

Item	Monthly
Rent	$2,200
Mortgage payment	−$1,100
Property tax	−$250
Insurance	−$100
Maintenance reserve	−$150
Vacancy allowance (5% of rent)	−$110
Left over	$490

A higher mortgage rate or a few empty months can turn the result negative; the rental property calculator and positive cash flow pages work through the numbers. On tax, rent can be income from property or business income depending on the services you provide; see rental income or business income below. A REIT ETF (above) earns rental income without owning or managing a property.

Digital products, books and courses

Online courses, e-books, templates, stock photos, print-on-demand designs, blogs and video channels take time up front and pay only while they keep selling; sales can be zero. Marketplaces such as Etsy, Amazon Kindle Direct Publishing and Udemy handle payment and delivery and keep a share of each sale, set out in each one’s own terms. How to make money online and the freelancing guide cover the business side.

Income from selling what you create is business income, reported on Form T2125 (how to complete the T2125). Two rules apply once it grows:

GST/HST. You have to register for the GST/HST once you make taxable sales in Canada and are no longer a small supplier: that happens when your taxable sales go over $30,000 in a single calendar quarter (register from that sale) or over the last 4 consecutive calendar quarters (by the end of the month after that quarter); below that you can register voluntarily.
CPP. You contribute to the CPP if you are over 18, work in Canada outside Quebec and earn more than $3,500 a year; contributions stop when you turn 70, and from 65 someone already receiving a CPP or QPP retirement pension can choose to stop. Self-employed people pay both the employee and the employer share of CPP contributions on their net business income (11.90% above the basic exemption up to the first earnings ceiling, plus 8% CPP2 between the first and second ceilings), worked out on Schedule 8 and paid with the income tax return. A non-refundable tax credit is claimed on half of the base contributions, and the other half, the first additional contributions and all CPP2 contributions are deducted from income.

Where to hold investment income: TFSA, RRSP or a taxable account

TFSA. The CRA describes it as an account that “can hold cash savings and investments that generate tax-free income”, and withdrawals are tax-free. New room for 2026 is $7,000. Income earned in a TFSA and TFSA withdrawals don't reduce federal benefits such as OAS, GIS and EI, or credits such as the Canada child benefit, the Canada workers benefit and the Canada Groceries and Essentials Benefit (formerly the GST/HST credit). See TFSAs.
RRSP. Income earned in an RRSP is usually exempt from tax as long as the funds remain in the plan. You generally pay tax when you receive payments from an RRSP. Your RRSP deduction limit is your unused room from past years plus the lesser of 18% of last year's earned income and the year's dollar limit, minus your pension adjustment, plus any pension adjustment reversal and minus any net past service pension adjustment. Under Article XXI of the Canada-US tax treaty, US dividends paid to an RRSP or RRIF are exempt from US withholding; in a TFSA, FHSA, RESP or taxable account the standard 15% treaty rate applies, and only in a taxable account can it be recovered as a foreign tax credit.
Taxable account. Interest is taxed in full: the CRA says interest and other investment income “form part of your total income and must be reported on your return”. Dividends from taxable Canadian corporations are grossed up and then reduced by a dividend tax credit; foreign dividends don't qualify. A dividend is an eligible dividend only when the Canadian corporation paying it to a resident of Canada designates it as one (eligible dividends usually come from Canadian public corporations and other corporations resident in Canada that are subject to the general corporate tax rate); other taxable dividends, usually from Canadian-controlled private corporations subject to the small business tax rate, are other than eligible (non-eligible) dividends. The taxable amount, reported on line 12000, is the dividend plus a gross-up of 38% for an eligible dividend or 15% for a non-eligible one, whose taxable amount also goes on line 12010. The federal dividend tax credit is 15.0198% of the taxable amount of eligible dividends and 9.0301% of the taxable amount of other dividends: the total of the credit amounts on your slips (T5 boxes 12 and 26, T3 boxes 39 and 51), or from the line 40425 chart of the Federal Worksheet without a slip. Outside Quebec, a provincial or territorial dividend tax credit, at the rates of the province or territory where you lived at the end of the year, is claimed on line 61520 of Form 428; Quebec residents claim Quebec's credit on their Revenu Québec return. 50% of a capital gain is taxable. The investment tax guides and how GIC interest is taxed have the detail.

Rental and business income are earned outside these accounts and taxed on your return each year.

Airbnb hosting

Hosting on Airbnb means renting a room, a suite or a whole home to travellers for short stays. What a listing earns depends on its price, how many nights it books and its costs; what it is allowed to do depends on provincial and municipal rules; and the income is taxed under rules written specifically for short-term rentals.

How a booking becomes a payout

You list the space with its price, a cleaning fee if you charge one, house rules and an availability calendar. Guests book and pay through Airbnb, and Airbnb pays you after taking its service fee.

Airbnb has two fee structures for stays and is moving every home host to the second one:

Structure	Who pays the fee	Most hosts pay
Split fee (being phased out)	The host pays a host fee and the guest pays a separate guest fee	3% host fee
Single fee	The whole fee comes out of the host’s payout	15.5%

The fee is a percentage of the nightly price and any fees charged by the host, not including the guest service fee or taxes (Airbnb service fees). Airbnb says it can change its fees at any time, so the host dashboard shows the fee that applies to each reservation.

A hypothetical month for a one-bedroom suite on the single fee: 15 nights booked at $150 across five stays, an $80 cleaning fee charged on each stay, $70 paid to a cleaner per stay and $10 of supplies per stay.

Item	Amount
Nightly price × nights	$2,250
Cleaning fees charged to guests	$400
Amount the fee is calculated on	$2,650
Airbnb service fee (15.5%)	−$410.75
Payout	$2,239.25
Cleaner	−$350
Supplies	−$50
Left before utilities, insurance, the cost of the space and income tax	$1,839.25

GST/HST and local accommodation taxes charged to guests are on top of these amounts; the tax section below covers who collects them.

Rules to check before listing

Provincial and municipal rules. Whether you can list, what kind of home, for how many nights and with what registration is set by the province and the municipality, and the rules differ from city to city. Airbnb rules by city covers licensing, principal residence requirements, night limits, accommodation taxes and fines for the major cities. Breaking them also has a tax cost (see non-compliant rentals below).

Your building, lease and mortgage. A condo corporation or strata can have its own bylaws on short-term rentals, a tenant needs to check what the lease allows, and a mortgage’s terms can restrict how the property is used. Airbnb mortgage rules covers the lender’s side.

Insurance. Airbnb’s AirCover for Hosts includes US$3 million of host damage protection and US$1 million of liability insurance, with exclusions listed in Airbnb’s help centre. Your own home or tenant insurer decides separately whether it covers short-term rental use; home insurance explains what to ask.

Taxes on Airbnb income

The full detail is in the Airbnb host tax guide and Airbnb and short-term rental tax rules. The rules that shape a hosting decision:

Rental income or business income

The CRA looks at the services you provide. In most cases, rent with basic services only (heat, light, parking, laundry facilities) is income from property, reported on Form T776; but “if you provide additional services to tenants, such as cleaning, security, and meals, you may be carrying on a business. The more services you provide, the greater the chance that your rental operation is a business”, and business income goes on Form T2125. Business income is self-employment income for the CPP. You contribute to the CPP if you are over 18, work in Canada outside Quebec and earn more than $3,500 a year; contributions stop when you turn 70, and from 65 someone already receiving a CPP or QPP retirement pension can choose to stop. How to report rental income covers the T776 and its expenses.

A non-compliant rental loses its deductions

Section 67.7 of the Income Tax Act denies the expenses of a short-term rental for the days it is non-compliant. For a short-term rental (rented or offered for rent for less than 90 consecutive days), expenses and capital cost allowance for the days it doesn't comply with provincial or municipal rules (it isn't permitted at that location, or it lacks a required registration, licence or permit) can't be deducted. The full conditions are in the Airbnb tax rules guide.

On Form T776 the amounts go on lines 9366 and 9367 (CRA Guide T4036).

GST/HST

For GST/HST, taxable short-term accommodation is a unit rented to someone who will stay in it continuously for less than one month and that costs more than $20 a night. Who charges it depends on registration (CRA, platform-based short-term accommodation):

A host who isn’t registered: the platform operator, such as Airbnb, charges and collects the GST/HST on the stay. These platform rules took effect on July 1, 2021.
A registered host: charges and collects GST/HST on their own stays, including stays booked through a platform.

When a host has to register: You have to register for the GST/HST once you make taxable sales in Canada and are no longer a small supplier: that happens when your taxable sales go over $30,000 in a single calendar quarter (register from that sale) or over the last 4 consecutive calendar quarters (by the end of the month after that quarter); below that you can register voluntarily. Provincial and municipal accommodation taxes are separate; Airbnb rules by city lists them.

Selling the home later

Renting part or all of your home can change how much of the gain on a sale is tax-free. Principal residence exemption with partial rental covers the rules.

Sources

The figures and rules on this page come from these sources, last checked against them between September 14, 2026 and November 13, 2026. How we check facts.