What happens to capital gains or losses in investments made by a minor child according to attribution rules?

In the context of Canadian tax law, when a minor child holds investments, any capital gains or losses resulting from those investments are generally taxed in the hands of the child. This means that the minor child is responsible for reporting any income from those investments on their own tax return.

This mechanism aligns with the principle that individuals, regardless of their age, should ideally be accountable for their own income. While there are attribution rules that can apply in certain situations — typically regarding income that is gifted to a minor or that is deemed to be property transferred from a parent — capital gains earned directly by a minor child from their own investments aren't attributed back to the parents.

As a result, the capital gains or losses are subject to taxation according to the child’s taxable income, which often results in a lower tax obligation due to their likely lower income level compared to an adult. This can be beneficial for families who intend to create a small investment portfolio for their children, allowing the investments' earnings to be taxed in a potentially more favorable manner.

Understanding this aspect of taxation can guide financial planning strategies involving custodial accounts or investment funds established for minors, ensuring that their gains are handled correctly according to Canadian tax regulations.