The article “How to claim a child’s income below the basic personal amount” was originally published in MoneySense on July 10, 2023.
Even if a child’s earnings are exempt from income tax, they may be entitled to tax credits or deductions. Here’s how their income should be reported come tax time.
” Do I need to claim my 16-year-old daughter’s income if she made under $12,000? She’s full-time in school in Grade 11. Can I still claim her as a dependent? If I have to claim her income on mine it affects my income and I won’t get a refund. What happens if I choose not to claim her earnings this year, but claim it on next year’s? ” Margaret
Claiming a child’s income as your own
Canada has progressive tax rates with higher levels of income taxed at incrementally higher rates. But each taxpayer is entitled to a tax-free exemption—called the basic personal amount—that allows a portion of their income to be tax-free.
What is the basic personal amount in Canada?
There is a federal basic personal amount and a provincial or territorial basic personal amount. The federal amount is $15,000 and the provincial and territorial amounts range from $8,481 to $21,003 for 2023, depending where you live.
As a result, Margaret, at least $8,481 of your daughter’s income should be tax-free and maybe more depending where you live. She may be entitled to other tax credits or deductions as well.
Does your child have to file a tax return?
A taxpayer’s age does not exempt them from filing a tax return. So, your daughter’s income is her income and not reported on your tax return. One exception may be if you give your daughter money to invest. Investment income like interest and dividends (but not capital gains) for a minor child may be attributed back to their parent and taxable on the parent’s tax return.
If your daughter’s income is below the basic personal amount or she does not otherwise owe tax because of tax credits or deductions, she may not need to file a tax return. That said, Margaret, there are advantages to doing so. She may have had tax withheld at source on her income that can be refunded if she files a tax return that calculates she has no tax payable. She may be entitled to certain federal or provincial tax credits or benefits that are means-tested based on her income. She will also start to build her registered retirement savings plan (RRSP) room, because employment income is considered “earned income” for RRSP purposes.
Do you get a tax credit for dependents?
You asked about whether you could claim your daughter as a dependent. There is a tax credit called the amount for an eligible dependent, which you can claim if you did not have a spouse or common-law partner and lived with a low-income dependent, including a child. At $12,000, your daughter’s income would be too high to qualify even if your tax filing status is single, divorced or widowed.
You can claim medical expenses paid for a minor child, so, when added together with your own medical expenses, they may be enough to qualify you for a tax refund. Medical expenses need to exceed a threshold based on your income to save tax.
Carryforward rules: Can you claim a child’s income in a future year?
Finally, a taxpayer must file a tax return and claim their income in the year it is earned. There is no option to claim the income in a future year. Certain tax credits, deductions and losses may be eligible for a carryforward.
In summary, Margaret, you may not need to file a tax return for a child if their income is so low that they do not owe any tax. But there may be an advantage to filing a tax return for a child to qualify for tax credits and benefits as well as to generate RRSP room.
If you work with an accountant to prepare your family’s tax returns, they should be able to figure out the implications of a child’s income and whether they should file a tax return and if you can make any dependent claims. If you file your own tax return, do-it-yourself tax software may help you figure it out with the questions and prompts provided as you work through the preparation process.
About Jason Heath, CFP
