An active crypto trader of any age can be deemed to be earning business income, whether they are over 18 or not.FG Trade/iStockPhoto / Getty Images
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To teach financial literacy, parents may encourage teens to try out investment trading with imaginary money in a practice account. But what are the tax implications when children graduate to trades that use real money?
When a child is under the age of 18, the answer depends on the source of the funds used to invest, says John Waters, vice-president, director of tax consulting services, at BMO Nesbitt Burns Inc. in Toronto.
Money that is the child’s – say, from a part-time job or an inheritance – can be invested and taxed in the child’s hands. However, if parents or other close relatives give money to the child to invest as a gift (or lend money at little to no interest), the attribution rules kick in and any interest or dividends are taxed in the giver’s hands.
“The idea is that you can’t split income generally by investing in your child’s name,” Mr. Waters says. “The one notable exception to that is capital gains. So, it’s possible to potentially invest on behalf of a child, earn capital gains, and have those gains attributable to the child…
