I am renting the house to someone for $1500/mo. (paying 13% to a property Manager to look after it).

They want to buy it on Rent-to-Own basis. How much would be fair to ask? For instance: 1% down payment, then $2, 000/mo for rent, of which $300/month to go against total purchase price? Since I do not live there, I'll have to pay tax on the income. If I register small business (small proprietorship) and claim the expense to run the place against income, would that be better option? I live in BC, Canada.

Any other advice regarding this is welcome.
Thanks

A lot depends on the market in your area. What is the house price? I just did an LP with 3% down ($10,000), $2,000/month and $500 toward purchase, 1 year limit on exercising option. However, I did it myself without a property manager. Make sure the LP defines the time in which they must option to buy. If not, you just have long term renters. They should be responsible for repairs and maintenance in the LP. Also make sure that any earnest money they put down, becomes yours if they fail to exercise option. I think 1% is too low, $1,000 on a $100,000 purchase but make sure YOU get the money net, not after management fee.

First one percent down is not nearly enough, ( also be sure, that no deed is transferred until fully paid) normal down on a rent to own is minum of 5 percent and 10 percent is more normal. The issue here, is they do not buy it, you profit higher than just the rental value.

Will there still be a management fee, when you go to rent to own, that needs to be a charge outside of the monthly payment, also, the taxes and insurance should be a fee, on top of the montly payments

so they should pay rent plus money toward purchase, plus a fee for insurance and taxes and management fee, (that fee can change over the years)