How to Claim a Child’s Income Under the Basic Personal Amount

Claiming a child’s income as your own

Canada uses progressive tax rates, meaning higher income is taxed at higher marginal rates. Every taxpayer also benefits from a tax-free allowance known as the basic personal amount, which shelters a portion of income from federal and provincial or territorial tax. That allowance is applied to each individual taxpayer, not pooled within a family.

Because the basic personal amount applies to the person who earned the income, your daughter’s employment earnings are her responsibility for tax purposes. They are not reported on your tax return as your income. The primary exception involves certain investment income: when a parent gives money to a minor to invest, income such as interest and dividends generated from that money can, in many cases, be attributed back to the parent and taxed on the parent’s return. Capital gains from a minor’s investments are treated differently under the attribution rules.

What is the basic personal amount in Canada?

For 2023, the federal basic personal amount is $15,000. Provinces and territories also have their own basic personal amounts, which range from $8,481 to $21,003 depending on where you live. This means a large portion of low employment income will often be tax-free for the individual who earned it.

In practical terms, Margaret, at least $8,481 of your daughter’s income should be exempt from provincial or territorial tax, and the federal exemption can further reduce any tax payable. Depending on your province or territory of residence, the total tax-free portion may be higher. Your daughter may also qualify for additional credits or deductions that further reduce or eliminate any tax owing.

Does your child have to file a tax return?

Age alone does not exempt someone from filing a tax return. Whether your daughter must file depends on whether she has tax owing or can benefit from filing. If her income is below the basic personal amount and she has no tax owing after credits and deductions, she might not be required to file. However, there can be clear benefits to filing even when no tax is owing.

For example, if an employer withheld income tax at source from her paycheque, filing a return is the way to claim a refund. Filing also determines eligibility for income-tested federal and provincial benefits and credits, and it establishes “earned income” that creates RRSP contribution room in future years. Those factors can make filing worthwhile even for a student with relatively low earnings.

Do you get a tax credit for dependents?

You asked whether you can claim your daughter as a dependent. There is a non-refundable tax credit called the amount for an eligible dependent that a single, divorced, or widowed individual can claim for a low-income dependant they live with. However, with $12,000 in income, your daughter would exceed typical income thresholds and would not qualify as an eligible dependent for that credit.

While you may not be able to claim the eligible dependent amount, you can still claim certain expenses paid on behalf of a minor child, such as qualifying medical expenses. Adding your child’s eligible medical expenses to your own can help you reach the threshold needed to claim a medical expense deduction, which could reduce your tax payable or increase a refund.

Carryforward rules: Can you claim a child’s income in a future year?

Income must be reported in the tax year it is earned. You cannot defer reporting a minor’s employment income to a later year. Some tax attributes—such as unused credits, certain deductions, and losses—can be carried forward to future years, but earned income itself is not eligible to be claimed in a different tax year.

In short, if your daughter earned the income this year, it must be reported on her return for this year. If she doesn’t owe tax after applying the basic personal amount and any other credits, filing a return can still be advantageous for refunds, benefits, and RRSP room. If you use an accountant, they can model the family’s returns and advise whether your daughter should file and whether any dependent or expense claims apply. If you prepare your taxes yourself, most do-it-yourself tax software will ask the questions needed to guide you through the decision.

Read more from Jason Heath:

• 4 strategies for income splitting with a lower-income spouse
• Should you claim the principal residence exemption on a property you bought your child?
• The benefits and flexibility of family RESPs
• What to do when you overcontribute to your RRSP