In-Trust Accounts for Children in Canada: How They Work, the Tax Twist, and When to Use One

What Is an Informal In-Trust (ITF) Account?

An informal in-trust account is a brokerage account opened by an adult (the “trustee”) for the benefit of a minor child. Unlike a formal trust created by a legal deed, this is a simple arrangement: you deposit money, you invest it, and the funds are legally intended for the child. The account is typically titled “[Your Name], in trust for [Child’s Name].”

Anyone can contribute — parents, grandparents, aunts, uncles. There is no annual contribution limit, unlike an RESP or TFSA. However, there are no government grants attached — no Canada Education Savings Grant (CESG), no Canada Learning Bond. You are on your own for returns.

The Attribution Rules: Who Pays Tax on What?

This is where most people get caught off guard. The CRA applies attribution rules to income earned inside an ITF account funded by a parent or grandparent:

• Interest and dividends — these are attributed back to the contributor (the parent or grandparent) and taxed in their hands at their marginal tax rate for as long as the child is a minor. It does not matter that the money stays in the account: you must report this income each year on your own return.
• Capital gains — gains realized on the sale of growth investments are not attributed and are taxed in the child’s hands. Because children typically have little or no other income, the effective tax owing is often nil or very small.

This distinction drives the entire strategy: a portfolio of bonds or high-dividend stocks is largely inefficient inside an ITF account, whereas a portfolio of growth-oriented equity ETFs — which generate minimal distributions and most of their return through price appreciation — can be quite tax-efficient.

The Money Legally Belongs to the Child at the Age of Majority — Permanently

This is the most frequently overlooked point, and it is irrevocable. Once you deposit funds into an ITF account, that money legally belongs to the child. When the child reaches the age of majority (18 in Alberta, Manitoba, Ontario, PEI, Quebec, and Saskatchewan; 19 in British Columbia, New Brunswick, Nova Scotia, Newfoundland and Labrador, and the territories), they can demand the entire balance — whether you agree or not, and regardless of what they intend to spend it on.

If the child decides to spend the money on a vacation rather than tuition, you have no legal recourse. This is a fundamental difference from an RESP, where withdrawals are conditional on enrolment in an eligible post-secondary institution. Only contribute amounts you are genuinely comfortable transferring irrevocably to the child.

Paperwork and Record-Keeping: Do Not Underestimate the Burden

An informal ITF account has no precise legal framework in Canada. That creates several practical complications:

• Not all financial institutions handle ITF accounts the same way; some require additional documentation or do not offer them at all.
• You must maintain detailed records of every contribution, every income amount earned, and every transaction — this information will be needed for annual tax filings, both yours and eventually the child’s.
• If you use ITF funds for anything other than the child’s benefit — for example to cover a household expense — you may be in a legal grey zone as trustee.
• When assets transfer to the child at the age of majority, calculating the adjusted cost base (ACB) of each holding will be necessary to determine capital gains — a complex exercise if records are incomplete.

ITF Account vs. RESP: Which One Should You Choose?

For education savings specifically, the RESP wins almost every time. The CESG tops up your contributions by 20% on the first $2,500 per year (up to $500 annually), a guaranteed return that no ITF account can match. Growth inside the RESP is tax-sheltered until withdrawal, and Educational Assistance Payments (EAPs) are taxed in the student’s hands — typically at a very low rate. For more on Canadian savings and tax strategies, visit the WealthWise blog.

An ITF account can complement an RESP once it is maximized, or serve goals other than education — such as building a down payment fund for a first home. It can also be useful for family members (aunts, uncles) who cannot contribute to the child’s RESP. The key: favour growth-oriented, low-distribution investments to keep attributed income low and let capital gains accumulate in the child’s hands.

Frequently asked questions