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Structure for Kids Shares/Managed Funds

Discussion in 'Accounting, Tax & Legal' started by Tim, 20th Apr, 2008.

  1. Tim

    Tim Well-Known Member

    27th Jun, 2006
    Lismore NSW

    I am looking to invest the kids $10k savings into shares and/or managed funds. Does anyone know if I can simply use a trustee account on a managed fund so that the kid's tax exempt earnings can be ensured?

    I wasn't sure if I setup a trustee account for children with me as the main account holder say under CFS whether that in itself would be enough so that the tax exempt earnings were legit?


  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    Don't forget that minors only have a tax-free threshold of about $416 and any income above that is taxed at ridiculously high rates (higher than you pay !!)

    In my opinion, it is far better (from a tax planning point of view) to use a family trust to hold the assets so that you can stream the maximum income to each child, and any remainder can then me streamed to the adult with the lowest income to minimise tax.

    Of course the fees for managing a trust make this prohibitive for small investments - but if you use the trust for holdings IPs and such too, then it becomes worthwhile.
  3. AsxBroker

    AsxBroker Well-Known Member

    8th Sep, 2007
    Sydney, NSW
    Hi Tim,

    Look into Investment Bonds/Tax Effective Bonds.
    Income is taxed at a fixed rate of 30% (like companies) and growth after 10 years is tax free.



    PS Before making an investment decision speak to your FPA registered Financial Planner.
  4. Rob G.

    Rob G. Well-Known Member

    6th Jun, 2007
    Melbourne, VIC
    Assuming this is not money bequeathed from an estate, or money earned by the children from a business or personal services then the income (e.g. distributions and capital gains) will likely be taxed punitively.

    Dan's investment bonds option is a low cost tax effective option, but is more a "hands-off" approach.

    If you want to educate your children by involving them, another option is to hold the shares in an adult's name for which it will be taxed at adult rates. Then this money can be used to pay the children's expenses etc. (NB. If you hold the shares on the understanding that the income is completely theirs to do with as they please then you *might* be construed as a trust, however if the income is "yours" and you use it to provide pocket money and expenses for them then this might be persuasive.)

    CGT will be payable in the distant future if you want to change ownership to the children when adults. So any large anticipated shareholding has to be considered versus costs of alternatives.

    Then they will be interested in where the money comes from - i.e. scanning the newspapers & internet and reminding you when distributions are due (and of course the benefits of franking credits meaning there is more). They may end up giving you investment advice !!!

    By the way, if an elderly relative is about to fall off the perch you might ask them to favour the children via a testamentary trust as then children's tax does not apply.


  5. Bonnie

    Bonnie Member

    2nd Jan, 2008
    Hi Tim

    I'm investing for my children in their own names and choosing high growth/lower income vehicles that are as fully franked as possible to mimimise tax. Currently researching array of index funds/EFT available to choose best ones closest to this model. However, we are starting on small scale so tax won't be a big issue for us for quite a while anyway, just wanted to add my thoughts.