[will_hughes]

Maybe I misunderstand the taxation that BC is applying, but why should 'passive income' be taxed or treated any different to regular income for taxation purposes.

i.e if I earn $100 by working at a job, and $100 through renting out a property, shouldn't I be taxed the same as if I earn $200 through my job instead?

[TallGuyShort]

I'm also concerned about how arbitrary the line is between passive and active income. Let's say I rent out a lot of properties. I have legal obligations to maintain those properties. That might be a lot of work. A full-time job, even. Let's say I make a lot of money on investments. I might be ensuring the success of those investments by advising and doing research on / for the companies I'm investing in. Both of those things get called passive income, but they very well might not be in reality.

[skewart]

Me too. Distinguishing between passive and non-passive income seems in any kind of technical, legal seems incredibly difficult. It reminds me of the old "I know it when I see it" definifinition of pornography, which is a terrible definition for a law.

I'm actually really curious about the law now. Stock dividends must be considered passive income. So would interest from your local bank savings account. So would a SaaS app that you set up and basically runs itself with minimal maintenance.

[SilasX]

Very true! Given a sharp enough tax rate difference between two kinds of income (or two activities), you just generate a ton of socially-useless work aimed at blurring one into the other.

[sdenton4]

The term rent selling stats with 'rent' for a reason. The maintenance on any single property is miniscule compared with the rent extracted. Added over many properties, sure, might be a lot of work. But you're also getting a lot of rent.

The bigger part of the problem is the tendency to pass on the tax on passive income to the tenant.

[will_hughes]

This is also why when someone has enough capital to buy enough properties to extract a full-time wage out of the rent, you can be sure they're also not going to be doing the work themselves.

They'll offload it to a property manager/real estate agent to do all that work.

[nickff]

I don't know why the BC government makes this distinction, but it does. The $100 from working at your job is taxed at a lower rate than the $100 from renting out a property, though I should add that there are various schemes to avoid paying the 'passive income' tax.

[sdm]

This isn't actually the case now is it? Are you confusing corporate income tax with personal income tax? Normally if you're renting a place out you'd be doing it through a hold co. As the rental income would be your main business income it would be tax at the very low Canadian Controlled Small Business rate; not the general rate.

Even if you were to take the unwise, for both legal and tax reason, choice to not use a hold co, income from rent is FUNDAMENTALLY different from regular income. In that, if you make a loss, you can claim it. That's just not possible with regular income. I.e., if you rental unit is unprofitable, it reduces your taxes in general -- potentially applied in future years. This is not the with "active" income.

[dangjc]

In a simple math world yes, but tax policies consider other factors like social equity, disincentivizing work/investment, compliance likelihood, etc.

[roel_v]

"passive income" is not a tax term. Are you saying there should be a capital gains tax at the same rate as income taxes?

[SilasX]

The concept of passive income is used in tax laws, though in the US the term is "unearned income" (a term I really don't like).

[caretStick]

Why not? Someone working their ass off for $300k shouldn't pay more tax than someone banking $300k in "long term" capital gains.