Author Topic: Investing on behalf of minor children.  (Read 2191 times)

chasingthegoodlife

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Investing on behalf of minor children.
« on: April 20, 2022, 10:29:32 PM »
Do you invest money for your young children?

What structure do you use and how have you found it?

Do you have a set amount that you contribute, a goal you're trying to reach, or just add some every now and then when you can?

Minor tax arrangements are a bit complicated due to the high tax rate for minors unearned income and there's some conflicting information around online about taxation of 'informal trusts' (e.g a parent holding a share trading account 'as trustee for' the child).

E.g. this article seems to advise that you can open a trustee account, declare the income under your own name and then transfer ownership to your child down the track without triggering a CGT event
https://guidedinvestor.com.au/2021/03/26/investing-for-children-in-australia/

Whereas this one seems to advise that either the minor is the beneficial owner for tax purposes (income declared on minor's tax return, no CGT at transfer) or the parent is the beneficial owner (income declared on parent's tax return, transfer of beneficial ownership would be a CGT event).

I'm not looking for professional tax advice, but curious how others have decided to set this up and how it's working out for them.

 


Gremlin

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Re: Investing on behalf of minor children.
« Reply #1 on: April 21, 2022, 12:41:46 AM »
We have set aside a certain amount each week for both of our kids and we are investing it in our names.  We simply tracked these amounts in a spreadsheet.  This worked for us as we were already purchasing/held decent amounts of ETFs and we didn't want small volume transactions for the kids being gobbled up with transaction fees.

When kids reached an age when we felt they were 'ready' (son was 12, but daughter not ready until she was 14), we told them they could determine the investment strategy.  We limited it to choosing between VGS, VAS and cash.  My daughter (now 15) this year asked if she could instead have VESG and VETH to choose from.  We agreed.

They are also allowed to contribute their own money in and we'll allocate shares to them. 

When they turn 18 we will pay them in cash the total in their account if they choose.  We have enough in cash or equivalents that we won't need to sell down our 'own' ETFs to fund this for them.  We will cover the cost of transaction fees if they wish to invest in the same ETFs as they currently have 'allocated' in their own name.  We have told them that if they prefer, we will continue to 'shadow purchase' ETFs for them until they get their first full time job or leave home, whichever is later.

It may not be the most tax efficient, but we are spreadsheet savvy so it works for us.  I also like that it gives the kids some visibility of how we've set ourselves up for financial success without 'forcing' them to take an interest, and helps them build good investing habits early.

chasingthegoodlife

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Re: Investing on behalf of minor children.
« Reply #2 on: April 21, 2022, 02:23:05 PM »
Thank you @Gremlin, that’s exactly the kind of idea I was looking for. Your method would allow me to pay tax at my marginal tax rate and avoid CGT when we transfer the funds, I’d just need to be a bit mindful of our asset allocation coming up to transfer time if it was a big amount.