Baby steps

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  By Guest Blogger Sinan Terzioglu

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Helping children to invest early can be a powerful lesson, but the rules around accounts for minors in Canada aren’t always straightforward. A recent client question highlights the practical options and planning considerations for young investors.

My 16-year-old daughter has been working and saving most of what she earns. She’s eager to start investing, and I’ve offered to match her contributions to encourage long-term saving and help her develop good investing habits early on.
 
I understand that she won’t be eligible to open a TFSA until she turns 18, but is there another type of investment account she could use in the meantime to invest her savings? And once she does turn 18, would it make sense for her to open and begin contributing to an FHSA right away?

In Canada, an individual must reach the age of majority, either 18 or 19 depending on the province, before they can open and independently manage a TFSA, FHSA, and a non-registered account. For those who have not yet reached that age, there are alternative accounts available to help younger savers begin investing.

RRSP

If a minor has T4 employment income and files a tax return, they are eligible to open an RRSP in their own name. There is no minimum age requirement for an RRSP. The key requirement is filing a tax return, as RRSP contribution room is generated based on 18% of the prior year’s earned income and only becomes available in the following year. Until the child reaches the age of majority, a parent or legal guardian will need to act as trustee or have signing authority on the account.

While the funds used to make RRSP contributions can be gifted by parents or grandparents, the RRSP deduction belongs to the child. That deduction can be carried forward indefinitely and used in future years when the child’s income and marginal tax rate are higher. This creates a powerful planning opportunity, allowing contributions to begin early while preserving the tax deduction for later use.

From a long-term perspective, this approach can be especially effective. Even if tax rates at the time the deduction is eventually claimed and at the time of withdrawal many years later are the same, the outcome is equivalent to earning a tax-free rate of return on the original after-tax investment. This makes early RRSP contributions an exceptionally powerful way to combine long-term compounding with tax deferral.

In-Trust-For Account (ITF)

An ITF account is often described as an informal trust because it does not require a formal deed of trust. By comparison, formal trusts involve legal documentation and ongoing administrative and legal costs, making them only appropriate when larger amounts of capital are involved and/or when greater control is needed. For many situations, an ITF account provides a simpler and more cost-effective alternative.

ITF accounts are opened and managed by a parent or legal guardian on behalf of a minor. While the adult controls the account during the child’s minority, the underlying assets legally belong to the child. Once the child reaches the age of majority, full control of the account transfers to them automatically. There is no cost to establish an ITF account, which makes it easy to set up.

From a tax perspective, ITF accounts require careful planning. When funds are gifted by a parent or guardian, interest and dividend income is generally attributed back to the contributor and taxed in their hands, while capital gains are taxed to the child. The attribution rules do not apply if the contributions can be clearly traced to income earned by the minor, such as employment income.

If a trustee were to pass away before the child reaches the age of majority, the assets in the ITF account do not typically form part of the estate, as they legally belong to the child. However, the administration of the account may depend on estate or court processes to appoint a successor trustee, which can delay access until the child reaches the age of majority.

While ITF accounts do offer some benefits, I’m generally hesitant to recommend using them when funds are being gifted to a child. The primary concern is the loss of flexibility and control once the child reaches the age of majority, at which point they gain a legal right to access and control the assets. In many cases, I would prefer to retain discretion over whether it is truly in the child’s best interest to assume full control at that time, rather than having access determined solely by age.

An alternative I often recommend instead of using an ITF account is for the parents or legal guardian to open a separate non-registered account in their own name and informally earmark it for the child. While this approach does not offer any tax advantages, the trade-off is greater control and flexibility, which I believe is well worth it when funds are being gifted to a minor.

FHSA

An FHSA can be opened once an individual reaches the age of majority in their province. The annual contribution limit is $8,000, with a maximum lifetime contribution of $40,000. Contributions are tax-deductible, and similar to RRSPs, the deduction does not need to be claimed right away and can be carried forward and used in a future year.

One important planning consideration is that an FHSA can only remain open for up to 15 years from the year it is first established. Given that the average age of a first-time home buyer is now approaching 40, I generally recommend waiting until the early or mid-20s before opening an FHSA, particularly for those living in expensive cities and not expecting financial support from family. This approach helps ensure the account remains open long enough and increases the likelihood that the funds can ultimately be used tax-free toward the purchase of a first home.

In summary, starting to invest early can make a meaningful difference for minors, especially when it’s paired with thoughtful planning. Depending on a child’s age, income, and family circumstances, RRSPs and ITF accounts can help bridge the gap until options like TFSAs, FHSAs, and non-registered accounts become available. Taking the time to plan ahead can set young investors up for long-term success while avoiding limitations down the road.

Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd.  He served as vice-president of RBC Capital markets in New York City and VP with Credit Suisse in Toronto.

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About the picture: “Greetings from Nanaimo,” writes Isaballa. “This is Bella and Charlie.  They are golden retrievers who like swimming and playing fetch.  I just finished another year of university. My TFSA and FHSA thank you for offering a free class every day in another way.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2026/05/01/baby-steps/