Ways to Generate Passive Income in Canada in October 2023

Posted on October 3, 2023 by Dan Kent
Ways To Generate Passive Income in Canada

With the rising cost of living, more and more Canadians are reaching out to side hustles and second jobs to generate extra income, especially with the surge of online jobs that have become part of the mix in the economy.

Whether it be to pay down Canada student loans while you're in college, or simply fund your next vacation. Everyone is looking for more money.

However, many of these jobs and side hustles require active participation from the person to make any money. If we can generate passive investment income, we can build a nest egg and grow our net worth even during times of rising costs.

Because of this, many Canadians are wondering what the best businesses are to start in Canada are, or how they can earn more passive income from assets they already own or could own. In this article, I'll speak on the multitude of ways you can start generating more from passive income sources today.

Ways to generate passive income in Canada right now

  • Dividend stocks
  • Exchange-traded funds (ETFs)
  • Real estate investment trusts (REITs)
  • Rent your home on Airbnb
  • Rent your car on Turo
  • Acquiring and/or building websites
  • Bonds
  • Guaranteed investment certificates (GICs)
  • High-interest savings accounts
  • Peer-to-peer lending services
  • Start a YouTube channel
  • Build and sell courses
  • Credit card rewards deals
  • Stock photography
  • Drop-shipping
  • Create a digital product
  • How to generate tax-free passive income in Canada

Dividend stocks

Investing in strong, blue-chip paying dividend stocks is often considered the number one way to earn passive income in Canada. The prospect of investment in general appears commonly in front of people that are search for ways to get rich in Canada. The theory is simple. You invest an initial amount of money in a company. That company then does all the work selling products and/or services and generating earnings.

As an investor in the company, you own a portion of all assets, liabilities, and earnings that the company generates. A dividend-paying company will pay a portion of those earnings back to shareholders as a reward for holding the stocks.

Typically, a company will not pay out all of its earnings back via a dividend. But make no mistake about it; you still own the portion of those earnings it decides not to pay back. The company could reinvest that remaining capital back into the business to generate more earnings for you, the shareholder. Or, it could potentially do something such as buy back shares.

Even though this might not be passive "income," it is undoubtedly a passive way of building wealth and growing your net worth. An added bonus, eligible dividends, depending on your particular situation, can actually be more tax-friendly than capital gains or interest income.

Buy exchange-traded funds

ETFs, especially ones that track an entire market index, are arguably a more passive form of income than dividend stocks. Even if you stick to blue-chip companies, picking individual stocks does require more research and a knack for identifying strong companies.

On the other hand, ETFs can give you one-click exposure to many companies, ranging from 40 to over 10,000. These ETFs have a wide range of distribution yields, which will, in turn, impact your passive income stream you generate from them.

For example, a broad-based ETF like VOO, an index fund that tracks the largest 500 companies in the United States, might only pay you a distribution of around 1.5%. In contrast, a fund like SCHD, specifically targeting a basket of stocks that pay generous dividends, might pay you 4%.

Buying ETFs in an investment portfolio can be a solid way to reap the overall benefits of the stock market and generate a passive income stream. Although you'll pay an annual fee with an ETF, they're usually minor compared to the diversification you get when you own them. 

For example, a low-cost index fund may cost you around 0.10% in fees every year but give you exposure to over 10,000 companies, something that would be cumbersome to do by yourself.

Real estate investment trusts (REITs)

Many real estate gurus will often speak on how being a landlord is passive income. However, being one myself, I can guarantee that there is an active element to being a landlord and owning physical property. You have to take care of tenants and deal with issues in the home, among many other things.

There are also the upfront costs and risks associated with the down payment and mortgage you take out on the property. However, there is a much easier way to own real estate and generate income from it in a more passive way. That way is real estate investment trusts, or a "REIT."

A REIT is an investment that trades on the stock market, much like a stock. However, it is structured where most of its profits must be paid back to investors via a distribution. As an investor in the REIT, you give the fund capital to buy new properties, and as a result, they reward you with a chunk of the rents collected.

Think of the REIT like a property management firm you've invested in. They do all the hard work, and you sit back and collect your portion of the rent.

How much you'll make with a REIT depends on the fund's distribution yield. Some will yield 2%, while others can yield over 7%. It is vital that the quality of the REIT, and not the yield, is the highest priority.

Placing your home on AirBnB

If you're already a homeowner but spend some time away from it occasionally, listing it on AirBnB, especially in a tourist hotbed, can be a way to generate a steady stream of passive income.

AirBnB charges relatively little in terms of overall fees when it comes to booking the house, so you'll make most of the money yourself. In addition, guests are often more than willing to pay a cleaning fee, making this an even more passive form of income, as you can use that fee to hire a professional cleaner between visitors.

The larger your home, the more you can end up earning. And the more amenities you have, such as a pool, pool table, patio, or gym, can increase the amount you can charge. If you're a person who tends to go away during long weekends and holidays, these times often command higher rental prices as people are looking to rent a home to visit family or get away on vacation.

Some people are searching for the most affordable places to live in Canada, while others are looking toward the prospect of Airbnb and which areas suit that best.

The one thing you must consider when utilizing an AirBnB as a form of passive income is to make sure you have the proper insurance to cover yourself in the event something happens.

Renting out your car

If you're like me and your car sits in the driveway more than it gets driven, you could look into something like Turo, which is pretty much the AirBnB of vehicles. It's a way to make a solid passive income stream, with the average owner on Turo making over $1000 per month on their car.

The process is relatively simple. List your car on the website for free, which takes around ten minutes. Then you can set your specific prices, availability dates, and other customizations. If you'd like Turo to take care of pricing adjustments to earn you maximum revenue, you can do that too.

From there, you'll swap keys with your guests when needed and earn 75% of your total booking fee. The company states that it also offers liability and physical damage insurance on the vehicles, offering peace of mind.

Acquiring and building websites

Some people endeavour to figure out how to make money online in Canada. Content websites, mainly blogs focusing on evergreen content, are arguably the best form of passive income. Why? The content exists online, and website owners can generate revenue from display ads and affiliate marketing without lifting a finger.

Sure, you have to develop the website and the content and get it ranking on search engines to drive traffic. But after you do, it is truly passive income.

If you have some initial capital, you could also purchase content websites that are currently generating earnings, and they typically cost you much less than a stock or a REIT on an earnings basis. For example, a content website can often be had for 3 or 4 times its annual profits. A stock, on the other hand, may cost you 20-25 times its earnings.

Make no mistake about it, however, content websites come with much more risk, which is why they trade at a lower multiple.

The difficulty with this type of passive income is that starting a new website can take years to see results. Your content is typically on an island, and you need to make a strong effort to market it to get it so visitors can see it.

But when done correctly, you can earn potentially even 6 figures of passive income.

Buying bonds

A bond is a unique investment in that unlike a stock in which you own a portion of the business you are buying the stock in, you don't own anything with a bond. Instead, you are effectively loaning the company money in return for a fixed interest payment.

Bonds have a par value, a coupon, and a maturity. When you buy a brand new bond, you'll decide on a maturity date, pay the par value, and receive semi-annual coupon payments, which are effectively your fixed interest payment.

After maturity, the company will pay you back your initial par value. We won't get into the complexities of buying existing bonds at a premium or discount to the par value, but just know that this is one of the main differentiators between buying a bond and a stock. There is no guarantee your initial investment will ever come back to you with a stock. With a bond from a high-quality company, you are almost guaranteed to get your initial capital back.

I say "almost" because there is always the element of risk of default. Even some of the best companies can go through rough times and not be able to satisfy their debt obligations. But generally, a company with a high credit rating has a low chance of not returning your initial capital or paying your interest.

Bonds truly are set and forget passive income. They require some initial research into the companies to ensure you select a company with a high probability of payment. But after that, you simply sit back and collect the interest.

Another thing to note is that bond income is not exactly tax friendly. In fact, interest income is the worst form of taxable income. This is something to consider when looking to buy bonds in a taxable account.

Buying a GIC

Unlike a bond, which carries with it default risk, a GIC, or Guaranteed Investment Certificate, is a risk-free way to invest your capital.

The process is simple, you buy a GIC with a particular maturity date from a financial institution of your choice. From there, that institution will pay you a fixed amount of interest, typically semi-annually. At the maturity date of the GIC, you get your initial capital back.

Because these are deposit-based investments, they are insured for up to $100,000 through the CDIC. This means if you buy a GIC with a financial institution and it fails, your money will be covered 100%. If you have more than $100,000 to invest in a GIC, you can spread it out through multiple institutions to ensure that all of your money is insured.

Before the rising interest rates as of late, these were not the most popular investments. Primarily because they did not yield much. However, it is not unheard of these days to get 5%+ on a GIC, more than a blue-chip dividend stock.

Open up a high-interest savings account

To maximize the money you can earn from this passive income method, you'll need to do some shopping. If you plan right and utilize the promotional rates that are sometimes offered, I've witnessed people making upwards of 4.5% on the money inside their savings account. And the best part, it is 100% passive income that is guaranteed.

Many institutions that do not offer brick-and-mortar stores will offer higher savings rates inside the accounts than you'd see with a bank like TD or Royal. So, make sure to shop around, and if a bank offers a bonus rate for a particular amount of months, be sure to take it. Nowadays, swapping bank accounts takes a few clicks of a button, and there is no reason not to utilize the offers given to you.

Utilize a peer-to-peer network

Peer-to-peer networks have exploded in popularity over the last decade due to rapid technological advances. Rather than get into the awkward situation of loaning your friends money and expecting them to pay you back in good faith, you can register for a network like GoPeer and actually enter into an agreement with another Canadian who needs money.

In turn, you'll passively generate interest payments on the loan they owe you. And the best part about a system like this is that if a Canadian needs a $10,000 loan, you can give them the entire $10,000, or $10, whatever you want. In time, other lenders will fill the remaining loan needs until the consumer has what they want.

Keep in mind this is not without risk. In fact, it may be one of the riskiest forms of passive income on this list. Many borrowers who head to a platform like GoPeer have been shut down by major banks due to high debt levels. Not all, but certainly a lot. In this case, there is a higher likelihood that your initial investment could be lost.

On most P2P platforms, you can choose which type of borrower you want to lend your money to. The higher-risk ones will offer a higher interest rate on the loan but have a lower chance of repayment, while the lower-risk ones will more than likely pay you back, but will have a reduced interest rate payment.

It can be a strong but somewhat risky way to generate a passive income stream.

Start a Youtube channel

There are two elements to this type of endeavour, a passive one and an active one. The passive route would be developing a Youtube channel, creating content that is evergreen in nature, and reaping the benefits from it over the long term.

The contrary would be actively managing and maintaining your Youtube channel with consistent content. This, however, is incredibly time-consuming, coming from personal experience.

If you have a video that is helpful and useful to Youtube's audience, it will continue to deliver that video regardless of how old it is. We have some Youtube videos on our Stocktrades channel that are 2-3 years old that still get consistent traffic resulting in passive income.

While it is true that advertising revenue on Youtube isn't the best, you can also utilize affiliate marketing on the platform to generate revenue outside of Youtube advertising.

The only downfall of this passive income generation is that you typically need a recording device and some editing skills. However, with the advancement in phone technology, they're better than many of the mid-quality cameras available.

Sell courses

This is another one of those methods to generate a passive income that does require some initial upfront time investment. But, once you are done and have a finished course, as long as the content is evergreen, you can potentially earn passive income from the course for years.

Most courses these days require both video and written content. So, you'll likely need a recording device, a microphone, and a course plan. From there, put time and effort into making each course module as informative as possible.

Unfortunately, making the actual course is the easiest step in this plan. The difficulty comes with setting up the business, getting a small-business bank account, and then marketing the course and actually getting sales. With the market being relatively saturated with courses these days, you'll spend a lot of time gathering an audience, and from there, you need to convince them why your course is better than the hundreds already out there.

Maximize credit card rewards

Although this passive income method doesn't have the chance to earn large-scale returns like others on this list, it's still a prudent way to get free money from spending cash on things you would have already bought otherwise.

These days, the credit card world is cutthroat. Competition is fierce, and cards are coming out with new features that benefit the end user more and more every day. As such, you can grab credit cards that utilize a points-based or cash-back system and benefit from them.

For example, a 2.5% cash-back card is about as passive as it gets. You simply buy the goods and services you would otherwise at your local gas station or grocery store, and at the end of the year, or potentially even every month, your credit card company will issue you cash or possibly a gift card.

Points-based systems often allow users to redeem cash, items, or even travel, resulting in free vacations or that appliance you desperately need.

If you haven't started taking advantage of rewards credit cards, I suggest you peek into them today. Just make sure you aren't paying an annual fee to utilize one of them. There are plenty that are free.

Stock photography

If you've got a knack for figuring out what people will love to look at and have the gear to snap some pictures, you can make a ton of passive income via stock photography.

Many people, companies, and small businesses are looking for photos to use on their websites, advertisements, or in stores. They typically don't have the time to take the photos themselves, so they instead rely on websites like Pexels or Pixabay. In turn, they pay fees to the original owners of the images.

The more timeless your photos are, the more passive this method of income generation is. If you can place your image on a stock photo website online and the picture never loses its purpose in terms of overall age, it could theoretically sell licensing fees for decades.

Dropshipping products

The world of dropshipping has exploded over the last decade. What is more passive than opening your store and letting someone else handle the product and shipping costs?

With the emergence of Shopify, having someone else store and ship one of your products also becomes possible. Ultimately, this form of passive income does require some initial time to set up. If you are dropshipping your own product, it involves you actually manufacturing that product. 

Don't be fooled by the many dropshipping courses and gurus out there. For the most part, their revenue and earnings are manufactured. However, don't let that discourage you from investigating whether or not this is right for you. Just make sure you learn from trusted resources.

Create a digital product

Digital products are booming, especially with the advancements in technology. They can be anything from an ebook, a cheat sheet, or an Excel template. The fact that you do not need to have any sort of inventory or manufacturing costs is a huge benefit. For example, a traditional book requires physical inventory and comes with costs associated with the book's production.

On the other hand, an ebook has to be produced once. Then it can be distributed indefinitely with zero costs of goods sold. No matter if you sell 100 ebooks or 1 million, it didn't cost you anything more to create those additional 999,900 books.

This makes digital product income relatively passive, depending on how aggressively you want to market your product. If it becomes popular enough, you can collect sales at all times of the day.

If you try this method of passive income generation, try to identify a want or a need from an audience. If you can deliver it, they'll likely gladly pay you.

How to generate tax-free passive income in Canada

For the most part, this involves investing in the stock market or fixed-income market. But if you can tax shelter your investments in a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) you can earn tax-free passive income inside these accounts. You can also use RRSP contributions as a downpayment for your first home if you are eligible for the program.

Obviously, this won't work with something like a digital product or peer lending platforms. But it's still an option to consider for many. Figuring out how to save money on taxes using tax-sheltered accounts are one of the greatest ways to build wealth.

Overall, there are a multitude of ways to generate passive income here in Canada

Passive income is, for the most part, always going to be better than having to generate active business income or personal income. If we can do nothing and still earn money, we can utilize our time to build further income streams or simply do things we enjoy.

I didn't list all of the methods of passive income generation in this article, primarily because most of the ones you see listed on the internet today are not feasible for most people or have complex barriers to entry.

I've also left out the highly speculative ones, like crypto. Cryptocurrency, especially staking coins for yield, poses high risks, and I didn't feel I wanted to highlight it for readers. If you're interested, though, feel free to look it up.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Dan Kent

About the author

An active dividend and growth investor, Dan has been involved with the website since its inception. He is primarily a researcher and writer here at Stocktrades.ca, and his pieces have numerous mentions on the Globe and Mail, Forbes, Winnipeg Free Press, and other high authority financial websites. He has become an authority figure in the Canadian finance niche, primarily due to his attention to detail and overall dedication to achieving the highest returns on his investments. Investing on his own since he was 19 years old, Dan has compiled the experience and knowledge needed to be successful in the world of self-directed investing, and is always happy to bring that knowledge to Stocktrades.ca readers and any other publications that give him the opportunity to write. He has completed the Canadian Securities Course, manages his TFSA, RRSPs and a LIRA at Qtrade, and has compiled a real estate portfolio of his primary residence and 2 rental properties, all before his 30th birthday.