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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. 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 Canada Revenue Agency (CRA) guidelines if funds in your child’s bank account are generating interest. That’s when tax rules come into play determining if your child has to pay tax and how much needs to be paid.

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

The CRA’s basic rules for declaring income and paying income tax are no different for children. This means that, if children make an income, they must file a separate tax return just like other income-earning adults. So, your child’s income is not declared on your tax return.

However, there is a circumstance in which your child’s income could count as income on your tax return. When you give money to your children as a gift, any interest earned by investing that money counts towards your income for taxation purposes – not your child’s – according to the CRAs “attribution rules.”

Money made from investing gifts to your children is considered “first-generation income” and is attributed to you, even if the investment is in your child’s name. Money subsequently made on the investment is considered “second-generation income” and counts towards your child’s income.

So, 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 to let it grow interest and then transfer it to your children when they reach 18. Speak to a tax professional for more details and to find out what other options you may have.

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. So, any amount your child earns above the federal basic personal amount is taxable at the federal level. Similarly, any amount your child earns above the provincial basic personal amount is taxable at the provincial level.

For the 2019 tax year, the federal basic personal amount is $12,069, which is claimed on line 300 of your child’s tax return. Below are the 2019 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 in the form of 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 2019 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?

Some form of tax identification number is required to file a tax return. For individuals, including children, this is their Social Insurance Number (SIN). So, you won’t need to register for a separate tax identification number for your child to file a tax return. Separate tax identification numbers are used for foreigners and businesses with Canadian taxable income, because these people and entities do not have SINs.

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