Passive income
Learn what passive income is, common sources in New Zealand, and how it's taxed.
December 2023 | Published by Xero
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Passive income is money you earn from something you've already set up, without working actively for each dollar it brings in.
- It differs from active income, which you earn by trading your time and effort, and it's often split out as portfolio income when it comes from interest and dividends.
- For a small business, passive income can sit inside your business, run as a separate venture, or come from personal investments outside the business.
- Passive income is generally taxable in New Zealand, so check Inland Revenue and consider talking to a tax adviser about your situation.
What is passive income?
Passive income is money you don't actively work for. It keeps coming in from something you've already set up, such as an investment, a property, or an asset that earns on your behalf.
The word passive doesn't mean effortless. Most passive income takes real work, money, or both to get going, and it often needs a bit of upkeep once it's running. The difference is that the earning continues without you clocking in for every dollar.
For a business owner, passive income can add a steady stream of revenue alongside the day-to-day work you already do. That extra stability can help you manage cash flow and reinvest in growth.
Passive income vs active income
The simplest way to understand passive income is to compare it with active income. Both add to your bottom line, but you earn them in very different ways.
Active income is money you earn by trading your time and effort, such as wages, salary, or the fees you charge clients. If you stop working, active income stops too. Passive income keeps flowing from an asset or venture you've already built, so it isn't tied to the hours you put in.
You'll sometimes see a third label: portfolio income. Interest and dividends are often classed as portfolio income rather than passive income, since they come from financial investments rather than a business or property you run. In everyday use, though, many people group portfolio earnings under the passive banner.
Types of passive income
Passive income can show up in a few different ways depending on how it connects to your business. It helps to think about where the income sits.
Part of your business. Some passive income is built into the business you already run. For example, you might license a product design you created, or earn ongoing commission from a referral arrangement tied to your core work.
A separate business venture. You might set up a distinct income stream that runs alongside your main business, such as an online course or a rental you manage separately from your day-to-day trading.
Not related to your business. Passive income can also come from personal investments that have nothing to do with your business, such as shares, managed funds, or a rental property held in your own name.
Examples of passive income for a business
If you already run a business, you're sitting on assets you can put to work: your knowledge, your reputation, and the resources you've built up. Here are some passive income business ideas that build on what you already have.
One approach is to capitalise on your knowledge and skills. You can package what you know into something people pay for again and again:
Handy resources
Advisor directory
You can search for experts in our advisor directory
Xero Small Business Guides
Discover resources to help you do better business
Cash flow forecast template
Download our free template to help predict cash flow for your business
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.
- Create an online course or workshop that sells on repeat
- Write an ebook, guide, or template pack customers can buy
- License your expertise, designs, or processes to others
Another approach is to capitalise on your resources, using the physical assets and space your business already owns:
- Rent out equipment, vehicles, or tools when they're idle
- Lease unused office, storage, or retail space
- Earn commission by referring customers to trusted partners
Common sources of passive income in New Zealand
Beyond your business, there are plenty of everyday ways New Zealanders build passive income. Here are some of the more common sources to look into:
- Dividends from shares in New Zealand or overseas companies
- Managed funds and exchange-traded funds (ETFs)
- KiwiSaver withdrawals once you're eligible
- Term deposits and savings account interest
- Bonds and other fixed interest investments
- Listed property through real estate investment trusts (REITs)
- Rental income from residential or commercial property
- Royalties or licensing from creative work and intellectual property
Each source carries its own level of effort, risk, and cost to set up, so it pays to understand how one fits your goals before you commit.
How is passive income taxed in New Zealand?
Passive income is generally taxable in New Zealand, much like the income you earn from working. How it's taxed depends on where the money comes from, so it's worth knowing the basics before you file.
Income tax usually applies to passive income, and it's added to your other income for the year. On interest from banks and similar sources, your provider deducts resident withholding tax (RWT) before it reaches you. Dividends from New Zealand companies can carry imputation credits, which recognise the tax the company has already paid on its profits.
If you invest through a portfolio investment entity (PIE), such as many KiwiSaver and managed funds, your earnings are taxed at your prescribed investor rate, which is capped at 28%. New Zealand has no general capital gains tax, though some property and share gains can still be taxable depending on your circumstances. Residential rental property also has interest deductibility rules that change over time.
Tax can get complicated quickly, so check the latest guidance from Inland Revenue and consider talking to a tax adviser about your own situation. Keeping accurate records of every income stream makes reporting far easier when it's time to file.
Keep your passive income organised with Xero
When money comes in from several places at once, it's easy to lose track of what's earning and what's owed. Xero brings your income streams together in one place, so you can see your revenue clearly and stay on top of your records.
With your numbers organised and up to date, you can spend less time on admin and more time growing what you've built, so try Xero today and get one month free.
FAQs on passive income
Here are answers to some frequently asked questions about passive income in New Zealand.
What is the difference between passive income and active income?
Active income is money you earn by trading your time and effort, such as wages or client fees. Passive income keeps coming from an asset or venture you've already set up, so it isn't tied to the hours you work.
How is passive income taxed in New Zealand?
Passive income is generally taxable and added to your other income, with resident withholding tax (RWT) deducted from interest and imputation credits often attached to New Zealand dividends. Check Inland Revenue and consider a tax adviser, as rules for property and investments can vary.
Is rental income passive income?
Rental income is usually treated as passive income, since it comes from a property rather than your day-to-day work. It still needs some management and is generally taxable, with specific interest deductibility rules for residential rentals.
Can you earn passive income with little or no money to start?
Yes, some passive income relies more on your time and skills than on upfront cash, such as creating an online course or licensing your expertise. Most sources still need effort to set up, and financial investments usually require money to begin.
Is investment income the same as passive income?
Investment income from interest and dividends is often classed as portfolio income rather than passive income. Many people still group it under passive income in everyday use, since it earns without active work.