Non-registered investment account for minor

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CannonFodder
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Non-registered investment account for minor

Post by CannonFodder »

For birthdays & Christmas my daughters get money from relatives ranging in the 25 - 100 range.

I'd like to deposit most of these gifts into an ETF as a lesson in investing but the $10 transaction fee from my BMOInvestorline discount brokerage would really ruin that.

Given this is a non-registered account, there must be a better alternative?
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AltaRed
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Re: Non-registered investment account for minor

Post by AltaRed »

CannonFodder wrote:For birthdays & Christmas my daughters get money from relatives ranging in the 25 - 100 range.

I'd like to deposit most of these gifts into an ETF as a lesson in investing but the $10 transaction fee from my BMOInvestorline discount brokerage would really ruin that.

Given this is a non-registered account, there must be a better alternative?
Go with a TD e-series mutual funds in an online TD mutual fund account. The MERs are low enough and there is no cost to buy or sell. See https://www.tdcanadatrust.com/products- ... -funds.jsp If you work with a branch, it may take persistence to make sure it is an Online account only (to get access to TD e-series funds).

There is no point opening a discount brokerage account because of the minimum account sizes needed to avoid account fees.

There may be an issue opening any kind of investment account for a minor as well. Have you thought about her getting engaged in her RESP account, assuming you have one for her?
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OhGreatGuru
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Re: Non-registered investment account for minor

Post by OhGreatGuru »

If you intend to open accounts in your name, fine. But I believe it has been discussed before that minors cannot own investment accounts, because they cannot legally sign contracts. (completely apart from the attribution rules of CRA)
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Re: Non-registered investment account for minor

Post by BRIAN5000 »

You can open In-trust accounts at TDII (discount brokerage) if minors live with you (and there may be other interpretations of this) accounts fall under a family or household designation and are free. You may have trouble with TDDI issuing T-slips in the correct name. If this is a long-term plan accounts could be partially/wholly transferred into TFSA after 21 years, minor turns 18, earns too much taxable income etc.. This gives access to E-series and all other products.

Depending on dollar amounts two jars on the counter one marked savings one marked spending will also work.

For the DRIP fans out there you could also go through that convoluted procedure and start them dripping :(
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Paul64
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Re: Non-registered investment account for minor

Post by Paul64 »

Thank you for the responses.

I already have an RRSP account for them & the TD funds look perfect. I'm surprised BMO doesn't have this.
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big easy
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Re: Non-registered investment account for minor

Post by big easy »

BRIAN5000 wrote:You can open In-trust accounts at TDII (discount brokerage) if minors live with you (and there may be other interpretations of this) accounts fall under a family or household designation and are free. You may have trouble with TDDI issuing T-slips in the correct name. If this is a long-term plan accounts could be partially/wholly transferred into TFSA after 21 years, minor turns 18, earns too much taxable income etc.. This gives access to E-series and all other products.

Depending on dollar amounts two jars on the counter one marked savings one marked spending will also work.

For the DRIP fans out there you could also go through that convoluted procedure and start them dripping :(
I did this recently for my two children 14 and 16 at TDDI. Took an hour to complete the paperwork. After 40 years with TD, you'd think they would know my name, address, SIN etc. by now? But no, it all had to be manually entered line by excruciating line.

My understanding is that the income is taxable to me until they reach 18 unless the money is clearly theirs (children's tax benefit, birthday gifts, earnings etc). I suppose if one kept a journal of where all the money came from this would be adequate? The accounts were funded from their savings accounts but I'm not sure that would satisfy CRA. I will probably just pay the tax myself to avoid any hassles.
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Re: Non-registered investment account for minor

Post by Mouly »

I have InTrust accounts for my two kids. The money invested is all gift money and their CCB money. I file tax returns each year for them and attribute the resulting tax slips to them. For about the past three years I get an NOA for myself saying I missed claiming the money on my account and I owe so much. Then each year I remit that amount, file an objection explaining that it is the kids' money, and then get a full refund.

Dreading the day when they don't accept the explanation, which they logically should never do as they can see the amounts slowly rise each year due to new contributions. But then what does logic have to do with it. So as new money comes in I now direct it towards growth stocks rather than income stocks.

Before the InTrust accounts I actually had the kids owning stocks directly with a DRIP but that was too much hassle and I thought for the amounts of money involved I could get better diversification with an InTrust account.
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Re: Non-registered investment account for minor

Post by DavidR »

Mouly, is there any chance that the broker could start using the kids' SINs on the T slips, instead of yours?
Perhaps this won't fly, but if it does it would save you a lot of hassle with CRA.
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Re: Non-registered investment account for minor

Post by Mouly »

I doubt the brokers (BMOIL in this case) could or even would provide the child's SIN on the tax slip. Because wouldn't that mean they were ok'ing the slip as OK with respect to whether or not all the money attributed to the minor was in fact reasonable. I doubt they want to be on the hook for that and make it my responsibility.

When I had the DRIPs set up, the shares were in their name and so where the annual tax slips. But like I said, I found it too much hassle working with the physical shares and such. I find the minor trade off of having synthetic DRIPs acceptable.
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DavidR
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Re: Non-registered investment account for minor

Post by DavidR »

Here is a link to BMO's paperwork (found while googling "SIN for an in trust account") https://www.bmoinvestorline.com/adviceD ... ccount.pdf
Looks like for "informal" trust accounts, they insist on the SIN of the individual contributing the assets.
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Re: Non-registered investment account for minor

Post by OhGreatGuru »

Paul64 wrote:Thank you for the responses.

I already have an RRSP account for them & the TD funds look perfect. I'm surprised BMO doesn't have this.
Surely you mean RESP?
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Re: Non-registered investment account for minor

Post by cardhu »

big easy wrote:My understanding is that the income is taxable to me until they reach 18 unless the money is clearly theirs (children's tax benefit, birthday gifts, earnings etc). I suppose if one kept a journal of where all the money came from this would be adequate? The accounts were funded from their savings accounts but I'm not sure that would satisfy CRA.
It can get convoluted …
Gifts from non-arms-length persons (siblings, parents, grandparents, etc.), or from aunts & uncles are subject to attribution … note, however, that it is ONLY the first-generation income stream (dividends or interest) that is attributable … capital gains are always taxed in the hands of the child, from day one, and any second generation income (ie. if the first generation dividend/interest is reinvested, then any income earned on those reinvested amounts) are also taxed in the hands of the child.

Gifts from anyone other than the above are, of course, not subject to attribution rules at all. Everything taxed in the child’s hands in those cases.
Therefore, it may somewhat reduce the record-keeping burden to keep two separate accounts … one for gifts that are subject to attribution, and one for gifts that are not … for that matter, it may be beneficial to withdraw all of the income earned on the first account, and reinvest it in the second account … a little more cumbersome on the setup, but less aggravation come tax-time. Of course, you'd still need to journal, to justify the amounts placed in each account in the first place.

Personally, I would make the effort to document as much income as possible in the child’s hands … may seem like a lot of work when the amounts are small … but hopefully the amounts will not always be small.
big easy wrote:I will probably just pay the tax myself to avoid any hassles.
That is a reasonable solution, rather than forcing the attribution back to the grandparents/aunts/uncles … it may come across as ungrateful to reward their generosity with a demand that they pay a few pennies of taxes.
Mouly wrote:I have InTrust accounts for my two kids. The money invested is all gift money and their CCB money.
Gifts from who? The attribution rules exist specifically to address situations like this.
Mouly wrote:I doubt the brokers … could or even would provide the child's SIN on the tax slip. Because wouldn't that mean they were ok'ing the slip as OK with respect to whether or not all the money attributed to the minor was in fact reasonable. I doubt they want to be on the hook for that and make it my responsibility.
They wouldn’t be OK'ing anything, and they wouldn't be on the hook for anything … T-slips have nothing to do with attribution.
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Re: Non-registered investment account for minor

Post by izzy »

cardhu wrote:
big easy wrote:My understanding is that the income is taxable to me until they reach 18 unless the money is clearly theirs (children's tax benefit, birthday gifts, earnings etc). I suppose if one kept a journal of where all the money came from this would be adequate? The accounts were funded from their savings accounts but I'm not sure that would satisfy CRA.
It can get convoluted …
Gifts from non-arms-length persons (siblings, parents, grandparents, etc.), or from aunts & uncles are subject to attribution … note, however, that it is ONLY the first-generation income stream (dividends or interest) that is attributable … capital gains are always taxed in the hands of the child, from day one, and any second generation income (ie. if the first generation dividend/interest is reinvested, then any income earned on those reinvested amounts) are also taxed in the hands of the child.[/quote]

Bear in mind also that if the contributor as above is not subject to Canadian tax there obviously can be no attribution so if wealthy uncle Joe lives in the UK it may be more beneficial for HIM to contribute to the account in the kid's name!
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