While on the topic of taxation and passive income it is also important to note that "passive" income is taxed at a much higher rate than "active" income is. In Canada for instance passive income is taxed at 50%. With that being said, you may be better offer operating an active business that generates a much smaller profit than you would be from operating a business with a lot of passive income. In retrospect it all comes down to your disutility of effort and willingness to pay taxes. Nevertheless, though passive income streams are attractive, they do have their share of pitfalls.