# Investing for under 18 yo, regulations



## LifeInsuranceCanada.com (Aug 20, 2012)

I'm trying to set up an investing account for my 16 year old. If I'd have started at 16 I'd be a bajillionaire now etc.

TD tells me that the only way we can do that is to set the account up in our name, in trust for the youngster. Then, at 18, the account gets transferred to their name. But doing so means the units are sold at 18, and junior gets dinged with the capital gains at that point.

After 3 rounds of 'tell my what that is', he eventually tells me that this is regulatory.

Is this correct?


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## MoneyGal (Apr 24, 2009)

Yes, it is correct. Minors cannot open brokerage accounts in Canada, and you will need to open an informal in-trust account for your child (OR follow the workaround I'm about to spell out). However, the assets do not need to actually be sold when your son/daughter turns 18/19 (age of majority in your jurisdiction) - but there needs to be a deemed disposition of the assets. Much more detail here: http://www.camagazine.com/archives/print-edition/2005/sept/regulars/camagazine21094.aspx

Amazing workaround: there are no age limits to open an RRSP. Get that 16-year-old some earned income, and they can open their own RRSP. Magic!


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## uptoolate (Oct 9, 2011)

I would love to get updated with new information on this but my TD person has told me in the past that while someone less than 18 years old can open an RRSP that they will be limited to holding GICs within it because they will still not be able to open a TDW account. For this reason, we have gone the 'in-trust for' account route which allows the use of a TDW account inside the 'in-trust for' account and access to the full spectrum of investment vehicles. When the children have turned 18, they have opened TDW RRSPs and TFSAs. They have made RRSP contributions but not used the deductions. Saving those for the future when, hopefully, they will have more significant incomes. So far we have had 2 of 4 children pass through the 'in-trust for' to the money truly being theirs and neither has decided to take the money and run! Time will tell of course. 

MoneyGal, is that correct about what 'minors' can hold within their RRSPs?


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## MoneyGal (Apr 24, 2009)

I was solving for the "open account in own name" problem. I need to look further into what minors can hold in an RSP. Stay tuned!


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## LifeInsuranceCanada.com (Aug 20, 2012)

Thanks for the tip. I think his his earnings are like a couple of grand last year. That'd give him RRSP room of only $360 this year. Unfortunately we're looking to dump in 2-3k.

Ah, but the cra says this:


> Generally, you have to pay a tax of 1% per month on your unused contributions that exceed your RRSP deduction limit by more than $2,000


So looks like we could probably dump another $2000 on top of the $360 into an RRSP for him. And then next year just have him put away 18% of his gross from this year. Our current practice is for him to put away 1/3 of net income into long term savings, so the 18% isn't quite high enough to shelter it all, but it's close. 

Does that sound like it'll work?


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## LifeInsuranceCanada.com (Aug 20, 2012)

Gah! If that's true, it's pointless. They're already in a high interest savings account. The entire point here is to get junior into index funds + some bonds.


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## Sampson (Apr 3, 2009)

I invested into equity mutual funds within my RRSP when I was a minor. Have rules changed?


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## Charlie (May 20, 2011)

LifeInsuranceCanada. said:


> So looks like we could probably dump another $2000 ....
> 
> Does that sound like it'll work?


nope....the $2K overcontribution cushion is only avail to those over 18.

I think, as long as it's the kid's money there isn't a problem here with the 'in trust' account. And no deemed disp at 18. (I think MG's article is more about setting aside money for the kids rather then the kid investing his own). I cannot see anything that deems this so...

Not sure if you can set it up with the kid's SIN (while having it be the parent's account 'in trust for jr.'. I think you can as I've seen T3s and T5s from investment homes for kids under 18 with their own SIN -- but maybe not. These are security regulations, not income tax rules. If you're loaning/gifting money you've all sorts of attribution rules to abide by...but kids can definitely own stocks. And if they buy them with their own money that isn't gifted/loaned from selected related parties, the income is theirs.

(Can't help you with the details on how to set up the account -- but it can be done).


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## Potato (Apr 3, 2009)

Is there room left in the RESP?


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## LifeInsuranceCanada.com (Aug 20, 2012)

Charlie said:


> nope....the $2K overcontribution cushion is only avail to those over 18.
> 
> I think, as long as it's the kid's money there isn't a problem here with the 'in trust' account. And no deemed disp at 18. (I think MG's article is more about setting aside money for the kids rather then the kid investing his own). I cannot see anything that deems this so...
> 
> ...


So it seems like I'm stuck putting it in trust. We can put it into the youngster's SIN number, the banker did say that was possible. But he was very clear that there would be a deemed disposition at 18 to transfer it to the child's control.



> Is there room left in the RESP?


No room left there. And in this case, its not where we want the money to go. I'm looking at showing them how to invest long term for these funds, not for school which is coming up in a couple of years. We have a system where they split their income 1/3 spending money, 1/3 school savings, 1/3 long term savings. We contribute to the RESP to accumulate the bulk of their school costs, and they're responsible for a portion of their schooling costs (which they've saved through high school from the 1/3 of their income). 1/3 they get to spend on crap/hobbies/lunches/girlfriend-boyfriend/christmas gifts. And the last third is set aside for retirement type of savings. 

Thanks for the feedback. It sounds like we just need to do what the banker said, open an account in trust, then at 18 just handle the minimal implications of selling and rebuying the funds into their name.


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## MoneyGal (Apr 24, 2009)

Charlie said:


> I think, as long as it's the kid's money there isn't a problem here with the 'in trust' account. And no deemed disp at 18. (I think MG's article is more about setting aside money for the kids rather then the kid investing his own). I cannot see anything that deems this so...
> 
> Not sure if you can set it up with the kid's SIN (while having it be the parent's account 'in trust for jr.'. I think you can as I've seen T3s and T5s from investment homes for kids under 18 with their own SIN -- but maybe not. These are security regulations, not income tax rules. If you're loaning/gifting money you've all sorts of attribution rules to abide by...but kids can definitely own stocks. And if they buy them with their own money that isn't gifted/loaned from selected related parties, the income is theirs.
> 
> (Can't help you with the details on how to set up the account -- but it can be done).


Did I mis-read the OP? I thought this was money the OP was gifting the kid(s) -- hence the in-trust accounts (and attribution rules). I know that minors can hold individual stocks, I did (but I was a minor SO long ago that it well predates the emergence of discount brokerages).


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## Charlie (May 20, 2011)

LifeInsuranceCanada. said:


> But he was very clear that there would be a deemed disposition at 18 to transfer it to the child's control


This may be a criteria of the particular fund you are buying. Stocks can definitely be transferred to another account and if there's no change in ownership (and there won't be if it was the kid's money all along) there's no disposition or deemed disposition. 

I wouldn't sweat this....just file it away for when you do change the accounts and deal with how you report for tax at that time. But there's generally no disposition when mom transfers money that was always the kid's money to the kids control at some later date.


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## MoneyGal (Apr 24, 2009)

But Charlie, IF it is an in-trust account, there MUST be a deemed disposition once the child reaches AOM (or at whatever post-AOM age the trust specifies). I feel as though we are talking about two different things here.


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## Charlie (May 20, 2011)

You're right MG. If it's a trust that owned assets that were then distributed to the kid then there is a disposition. Here, I think, it's the kid's earnings (and possibly qualifying gifts etc) so there's no disposition. It was always his money. There is no separate trust that owns the assets. No settler, beneficiary, trustee. The account just had to be registered in the parent's name for regulatory reasons.


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## MoneyGal (Apr 24, 2009)

I just went and re-read the whole thread; it isn't clear to me where the money is coming from. Yes to securities regulations vs. CRA regulations.


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## OhGreatGuru (May 24, 2009)

To go back to OP's original question/plan, he probably cannot set up an investing account such as a trading account for a 16-year old (other than through some mechanism such as a trust). A 16 yr. old is not legally an adult, and cannot enter into contracts.

They are allowed to buy CSB's and GICs.

Mutual funds? I don't know for sure, but I think they would be the same contract issue as with equities. 

I believe someone has mentioned it is possible to gift stocks to a minor, but I suspect they would be not allowed to sell them until they reached majority.

Might be a lot simpler to wait until he reaches 18 and can open a TFSA.


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## My Own Advisor (Sep 24, 2012)

My understanding is there is no min. age for RRSPs. For the TFSA you need to be 18. Discount brokerage account, 18. 

Good on you to start showing them the power of investing for the long-term, but you could always continue to show them the power of saving until age 18. A bigger bucket of cash to invest in a couple of years, with no tax implications.


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## LifeInsuranceCanada.com (Aug 20, 2012)

Sorry I was confusing.

The money is the child's. He works part time and we have him save 1/3 of his income for long term (another third is saved for school, the remaining third is his to spend without our guidance). That 1/3 of long term savings has been gathering dust in a long term savings account. I'm looking to have him put it into 50% index fund and 50% bonds to show him how to index, rebalance,dollar cost average, etc.

So we're trying to transfer his money (and future deposits of 1/3 of his income) to TD, all in his name. TD says it has to be in our name, in trust but that we can attach his SIN for tax purposes. Then they've said at 18, he's going to eat some capital gains as we move it from in-trust to his own name. 



> You're right MG. If it's a trust that owned assets that were then distributed to the kid then there is a disposition. Here, I think, it's the kid's earnings (and possibly qualifying gifts etc) so there's no disposition. It was always his money. There is no separate trust that owns the assets. No settler, beneficiary, trustee. The account just had to be registered in the parent's name for regulatory reasons.


Yeah, still not clear on that. It's his money, but the banker says it has to be in our name, in trust. So I'd like to think that it's his money, we can put it into an index fund and then let him own it completely without consequence at 18, but it's not looking like we can. that's the real sticking point.

Barring any other revelations, I guess that's looking to be our best option, just open it in our name, in trust. I just wanted to confirm mostly that the banker was correct - he's been shown to be somewhat on the short side of knowledgeable in the past.


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## MoneyGal (Apr 24, 2009)

I went and read the IIROC rule book (at IIROC.ca). 

Here are the intersecting issues:

a). no IIROC firm will open a brokerage account in the name of a person who has not reached AOM in their province. (You can open a TFSA in some provinces at age 18, prior to AOM at age 19 for those provinces.)

b). a minor can absolutely hold stocks in their own name. However, not in a brokerage account opened in their name. 

c). a parent (or anyone) can open an in-trust account for a minor, and that account can hold securities. At AOM (or at another specified age post AOM), the assets in the trust account become the legal property of the trustee, requiring a deemed disposition at the transfer point. 

d). a parent has a non-arm's-length relationship to their child, so attribution rules can apply in financial transactions which involve parents and minor children. 

To the OP: my suggestion (as others have also made) is to keep the monies in HISAs. Your child(ren) can open brokerage accounts at their AOM. They can also open "pretend" portfolios and learn about investing in that way.


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## CanadianCapitalist (Mar 31, 2009)

I'm just thinking out aloud here. I wonder if OP can buy stocks or ETFs in his own name, request share certificates, sell the shares to his child who gets it registered in his name and hangs on to the shares until AOM. When the child turns 18, the child can open a brokerage account and deposit the physical share certificates.


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## MoneyGal (Apr 24, 2009)

No need to sell, the parent can gift the shares - there's no attribution of capital gains/losses, only income.


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## Charlie (May 20, 2011)

I *think* we're still mixing a situation where mom and dad set aside money for kids, vs a kid using his own earnings. I don't believe a true trust exists any more then a trust exists when I give my money to an investment dealer with discretionary powers. Mom and dad are just responsible for managing kid's money due to regulatory restrictions. CRA has no problem with kids buying stocks, and no deemed disposition rules on AOM. 

I suspect we're talking theory more then practice here, as with a few thousand dollars and a 16 yo kid, a tripped cap gain at 18 is likely not a big deal. Keeping a record of where the money came from is key. I have dealt with several situations where kids under 18 had 'in trust' brokerage accounts and never reported a disposition on AOM or a transfer to another account where there was no change in beneficial interest. Kid 'in trust' account to kid 'not in trust' account transfer is not a change in beneficial ownership in this case as no other entity ever had beneficial interest. Possibly I'm technically wrong here....but CRA has been OK with it and in the one instance they did request info for a minor kid, their focus was on attribution and kiddie tax. Now they are getting more diligent and not questioning something doesn't mean they condone it...but I'm really doubtful Justin Beiber or other kid stars had a deemed disposition at age 18 on investments which were purchased with their own funds. 

I'd let the investment house record it as they will, and report it on my (or kids) returns as it should be. 

If a CRA auditor challenged the non reporting of a gain at AOM, I would argue strongly that no trust existed. The funds were always unconditionally the kid's money. I'm pretty sure I'd win. CRA is surprisingly receptive to substance over form.


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## Charlie (May 20, 2011)

Quick edit....sometimes an individual fund may have restrictions on transferring accounts and/or re-registering. In this case, the fund may require a disposition which would be a recordable event and trigger a gain (or possibly a loss if it's like the funds I used to own). The loss would arguably be a superficial loss if the fund were immediately repurchased in kid's new account.


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## MoneyGal (Apr 24, 2009)

I have NO disagreement with any of your points but I think the brokerage is *requiring* that the account be opened as an in-trust account by the parent(s) -- nothing to do with CRA.


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## dzam1234 (Jan 15, 2021)

hello,
Im a 16 years old and want to start trading. i heared that the only way to do this is for my parents to open a informal trust account but they also said that i cant do any trading only the account holder can. so my question is can i even trade if im under 18?


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