Finder makes money from featured partners, but editorial opinions are our own.

What are the tax implications of opening a kids’ bank account?

Learn about the taxation implications of earning interest on a kids’ bank account balance.

If your child’s bank account has a balance that is earning interest, you need to know how this income is taxed, or whether you’ll need to pay tax at all. Canada Revenue Agency (CRA) rules require your child to report any income he or she makes on a separate tax return from yours. Keep reading to learn more about the ins and outs of taxing youth bank account balances.

Are there any tax implications for having a children’s bank account?

Young boy dressed as a tax accountantThere are no taxation guidelines just for opening a kids’ bank account. A kids’ bank account can be opened in the name of the child (if the account type allows it), you can open an account on your child’s behalf as his or her parent/guardian, or a bank account can be opened in the name of a controlling trust.

You’ll need to pay attention to CRA guidelines if funds in your child’s bank account generate interest. According to CRA guidelines, all Canadians must pay tax on earnings, regardless of the person’s age or the type of income (whether interest, dividends or through an appreciation in value, known as a capital gain). Even though your child may not earn money, the interest earned in their bank account will require tax to be paid.

Who declares interest income from a child’s bank account?

Under CRA rules, declaring income and paying income tax on interest earned is no different for children than adults. If a child earns money in their bank account, they must file a tax return. A parent cannot include the income earned on a child’s tax return on their T1 tax return.

If, however, the money deposited into your child’s bank account is a gift, then the rules change. When you give money to your child as a gift, any interest earned by investing that money counts towards your income for taxation purposes, according to the CRA’s “attribution rules.” This allows you to claim the interest and skip the process of filing a separate tax return for your child.

According to the CRA attribution rules, money earned from invested, gift funds to your child is considered “first-generation income” and is attributed to you, even if the investment is in your child’s name. If those funds are reinvested, the subsequent earnings are considered “second-generation income.” These secondary earnings are not attributable to the parent and the child is then required to file a separate tax return.

In short, if you gift your children with money to put in their bank accounts, be aware that you may be on the hook for interest earned on those funds.

Pro tip: One way to avoid paying first-generation income tax is to wait until your children are 18 to give them monetary gifts. Or you could put the money into an adult savings account under your name and let it grow through compound interest, before transferring it to your child after they celebrate reaching age 18. Speak to a tax professional for more details and to find out your other options.

Is savings account interest taxable?

What is the minimum amount of interest you can earn before it needs to be declared?

Children don’t have to pay federal or provincial income tax unless the amount they earn exceeds the “basic personal amounts” determined by the federal and provincial governments each year. This basic personal amount falls under $15,000, which means your child would have to earn more than $15,000 before they’d need to start paying taxes to the CRA. Similarly, any amount your child earns above the provincial basic personal amount is taxable at the provincial level.

Do minors pay income tax in Canada?

Minors typically don’t pay taxes in Canada, and your child isn’t required to file a tax return if they haven’t earned income, but there are some advantages to filing anyway.

According to the Canada Revenue Agency (CRA), a Canadian citizen does not have to file an income tax return if their earnings are less than the basic personal credit amount. This amount increases incrementally each year, in order to keep up with inflation, and is currently just over $14,300.

Once your child starts to earn an income, consider helping them file a tax return. Even if, as a minor, they won’t end up paying taxes, there are benefits. For example, your child could get a tax rebate if the money received had income tax or CPP premiums deducted at the source. Plus, filing a return before they are the age of majority helps set up their account with the CRA — making it easier and faster for them to start accessing tax shelters, such as an RRSP or TFSA, when they turn 18. Finally, every dollar your child earns goes towards building their RRSP contribution room. Since there’s no minimum age for opening an RRSP, your growing teen could also open an RRSP once they start earning. Remember they must be 18 or older to contribute more than $2,000 a year.

Educate your child and save on taxes owed

A parent can avoid the need to declare and pay income tax on a child’s bank account or investment earnings if the child elects to file an income tax return and the bank account or investment is in the child’s name.

How tax must be declared will depend on the type of account held by your child, but in general, the following guidelines apply:

Children’s savings account: A child can earn interest in their savings account and not pay income tax if the amount earned is less than the ” basic personal amount.”

For the 2022 tax year, the federal basic personal amount is $14,398, which is claimed on line 300 of your child’s tax return. Below are the 2022 provincial and territorial basic personal amounts, which are claimed on line 5804:


The government has made an exception to the basic personal amount tax exemption, however, and this is known as the “kiddie tax.”

Kiddie tax

Years ago, parents would give their children money as corporate dividends, which were then used to pay for the child’s living expenses like private school and extracurricular activities. Between certain tax credits and the fact that children don’t usually have enough taxable income to begin with, parents could use these contributions to shift a significant portion of their income onto their children to avoid paying income tax.

But this changed in 2000 when the government amended the Income Tax Act, making such dividends taxable.

Under section 120.4 (known as the “kiddie tax“) dividends sent from a private company to children under the age of 18 are taxed at the highest federal tax rate, so long as those children have a parent residing in Canada. For perspective, the highest federal income tax rate for the 2022 tax year was 33%!

On a positive note, the kiddie tax does not apply to capital gains. Plus, children can use the dividend tax credit to lower the amount of tax they owe. No other tax credits can be similarly used, though, including the basic personal amount.

If you intend to use your child’s savings account to house dividends from a private company, make sure you understand the tax obligations this will cause.

Does my child need a tax identification number?

The tax identification number is an American term used to describe an individual number assigned to a tax filer or American resident. In Canada, the tax identification number is known as a Social Insurance Number (SIN). This means, Canadians use their SIN to apply for jobs, to determine eligibility to grants and programs and to file their individual tax return. A Canadian can apply for a tax identification number from the Internal Revenue Service (IRS), just as non-resident Canadians can apply for a Canadian tax number.

Tax on children’s savings accounts FAQs

More guides on Finder

Ask a Question

You must be logged in to post a comment.

Go to site