Shares held ITF a child

Hi, Can't seem to get to the bottom of the ATO position on shares held by children when parent is trustee.

I set up a share account for each of my children. On the advice I had at the time I set it up "Parent ITF Child". There is no formal trust. The children are the true beneficiaries, and there is no trading, it was a one off purchase of an ETF with 100% DRP.

The ATO site seems to provide conflicting info. It says that I should provide the parent TFN where there is no real trust. However it also says if the shares are really beneficially held by the child then the child should declare the dividend.

I would have thought that whoever had the TFN provided would have to declare the dividend.

Any idea as to the true story? Thanks

 

Hi DJ,

Check out Income of individuals under the age of 18
You might even get some franking credits back...

Usually the account would usually be registered as:

George Bush Snr
<ATF George Bush Jnr>

ATF stands for As Trustee For...

Minors can register for a Tax File Number at any time.

Cheers,

Dan

PS This is general information speak to your accountant or tax adviser before making an investment decision.

 

The ATO will treat income as that of the adult where their TFN has been supplied.

If you really insist on holding as Trustee, the trust will need a TFN and prepare returns. The trustee will be assessed for the tax on behalf of the child beneficiaries.

The investment income derived by unmarried children under 18 is taxed at 46.5% unless the trust is investing proceeds of a deceased estate (started within 3 years of death).

Given the punitive tax rates for children, it is usual to just hold the account in the adult's name.

However, transfer of investment assets later on will incur CGT to the adult, and may impact on Centrelink benefits !!

Cheers,

Rob

 

I am about to find myself in a similar situation, as I am executor of a will and my 9 y/o daughter is a beneficiary, thus I am obligated to hold her inheritance in trust until she comes of age. The quantum is around $100k.

FWIW, my intention is to whack it in an investment bond which, as I understand it, requires nothing to be included on a tax return while it is held - or when it is cashed in - as long as it is held for 10 years or more.

The underlying investment of the investment bond can be Oz shares, international shares or any other sector as a normal managed fund my offer. The MERs tend to be higher than you would see in a straightforward ETF, but the benefit is not having any taxation implication (not even needing to include it on a return), as long as the 10yrs is met. Tax is paid internally to the fund at 30%.

If you end up pulling out before the 10yrs, then all sorts of unwinding of the tax benefit occurs.

Seems to me to be a good option for locking money away for kiddies.

-- Wally

 

If this is a trust set up by a will, or the trust is established with proceeds of an estate left for a child within 3 years of death, then children are **NOT** slugged by punitive tax rates.

This means they enjoy normal individual thresholds and shade-in rates, as well as tax offsets.

Now you as Executor have a fiducuary duty to invest wisely (not for your convenience) to preserve and grow the capital.

Additionally, there is usually a power to "distribute amounts from income and/or capital from time to time" in a discretionary capacity where the child needs education or health assistance or that special lifetime experience.

You need to understand your trust deed and the duties imposed upon you with regard to both financial and tax management by consulting a Solicitor and Accountant before embarking on a plan.

Cheers,

Rob

 

Thanks for the tips everybody. Think I am starting to form a picture.

In my case the amount is not so great. (It's basically the baby bonus for each, so up to $5K.) SO there will probably never be enough to hit the punitive rates for children (at least until they can start to earn their own $$$$ and avoid it). Particularly with the low income offset now, the interest earned is probably going to be below the mark.

Because it wont be enough for a house deposit, it would be a great amount to get them on a good trip OS after school or uni, so in that time frame with a low income, the CGT would be minimal. This is one advantage of keeping it theirs...

According to
Childrens share investments
I should provide my wife's TFN.

But according to
Childrens share investments (which is the next page in the navigation)
The dividends should be declared by the kids.

This is the crux of my confusion.

I'm leaning towards trying to use the age based exemption to providing a TFN.

 

That's a really good point. I am intending to obtain advice from my accountant, but the settlement of the will is still about 6 mths away so haven't yet.

I know I can dip into the funds for school fees and the like, but I'm reluctant to do so. Indeed, the main thing I want to do is figure out some way of stopping my daughter getting her hands on it at 18. I want her to flip burgers to pay for her first car. Getting a slab of money when you're 28 is far more likely to be life-useful than getting it when you're 18.

I was considering an arrangement where I do dip into the trust to pay school fees, and for every dollar taken, whack a dollar of my own into a separate fund which is 'my' money but earmarked for her. Then I can gift that to her at whatever later age I like. In that scenario, an investment bond would seem the way to go.

You're right - my goal should be best outcome for her; not convenience for me. But while the legally correct thing is to hand over the cash at 18, IMO the parentally correct thing is to delay that somehow.