Question

How would you define the concept of "passive income"? Any examples you can provide? Would you be subject to passive income rules?

I have already used Rental proferties for one example of passive income.

Answer 1

A passive income is an income which is earned without the active involvement of the earner in the business, such as dividend income. The investor just sits back at his home and earns dividends on the shares invested in a company. When an investor takes less risk and earns a fixed income then he can be called as earning Passive Income.

If I am earning interest income or dividend income or rental income then I will be subject to passive income rules. Generally Passive income is taxable income. According to Passive income rules if there is any loss in passive activity then the businessmen is not allowed to set it off against other active income. Although one can offset passive losses against any other passive income.