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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Murdoch on March 14, 2015, 12:33:42 AM

Title: Investment vehicle for children - Australia
Post by: Murdoch on March 14, 2015, 12:33:42 AM
Hi guys,
I don't have children, but likely will in the near future.
The US has tax efficient investment vehicles which are useful for putting kids money into to pay for university/college.
Is there anything similar in Australia? I have very little knowledge in this area and looking to expand.

If you wanted to started putting a regular amount away for a child that they can access in the future, what are our options?

1. Superannuation
- how old must someone be to have a superannuation account?
- obviously things can change a lot in the future and with limited access to such money this may be a silly option, however it is hard to pass up 65 years of compounding if we are able to put even small amounts in to help secure later retirement for our kids.

2. Shares
- can shares be bought in children's names?
- is there a specific structure in which they need to be held?

3. Savings accounts
- is there an age limit?
- would it be worthwhile?

Any other ideas?
In my family, cash gifts are more common than tangible items (which is a great), and certainly the older generations offer money to help them get ahead in life. This can be spent in the short or medium term for things like clothes, school, whatever...
I'm interested more in vehicles to put money which will compound over the longer term, and can be used later in life, but also as a real life lesson on the power of compounding.

Thanks in advance
Murdoch
Title: Re: Investment vehicle for children - Australia
Post by: deborah on March 14, 2015, 01:34:13 AM
Insurance bonds are what is generally suggested because children have to pay tax after earning $0? $384? - not much anyway, and the bond pays tax, and withdrawals are tax free after 10 years and you can add to them, so if it is 10 years old and you added some money last year it is ALL tax free.

Yes these are the savings bonds that sunnymo mentions below
Title: Re: Investment vehicle for children - Australia
Post by: Sunnymo on March 14, 2015, 01:45:51 AM
Hi Murdoch,

Two thoughts...

1. A savings bond. Minimum term 10 years, small buy in, monthly contributions. They are 'tax paid' so nothing needs to be reported on Tax Returns (no nasty 'children's tax' * to worry about).  After 10 years can cash out or keep going; I ran one for 12 years and then used it as most of a house deposit. I think you may be liable for tax if cashed out before the 10 year mark.

2. "Scholarship Funds" ASG - Australian Scholarship Fund is probably one of the better known ones. I think you need to start it before a child is a certain age and then you make regular contributions. If the child takes up post secondary study you make regular withdrawals from the fund. If the child does no further study you can cash out and receive back the amount you contributed but none of the earnings. My Sister and Brother In law set one up for each of their two kids. The oldest is in the final year of uni; they have set the withdrawals at the same rate as Ausstudy; kid lives at home, gets the money and can concentrate on studying. She uses it for transport, phone, textbooks etc. Second child is year 12 this year so not sure of the plans there but they will offer her the same deal.

No idea of the tax treatment with option 2

I don't think a child can buy shares in their own name; there would need to be some sort of trustee arrangement.

* Children's tax applies to 'unearned' income directly in a child's name. This generally covers dividends, interest and trust distributions. It was established to prevent tax minimisation by placing an adult's assets in a child's name or by making the majority of distributions from a trust to a child that has no other source of income. The rates are:

$0 to $416 rate is nil
$417 to $1,317 rate is 66%
over $1,317 rate is 45%

But, with current interest rates you would need more than $10,000 in the bank to be triggering the children's tax. Well before hitting that mark I would be doing something else with the money.

In terms of opening a bank account you would need to check with the various banks as to their requirements in terms of age etc. Many kid's accounts have 'bonus saver' type features to encourage a regular saving habit.

Another option to consider (if you have a mortgage) - stick their money in your offset and track with a spreadsheet. This will give you a guaranteed tax free return equivalent to your loan interest rate. Again, when you accumulated a lump look at your options.

Title: Re: Investment vehicle for children - Australia
Post by: Murdoch on March 15, 2015, 02:54:55 AM
Thanks guys. Very useful to know those tax rates. Harsh, but I understand why.

Murdoch
Title: Re: Investment vehicle for children - Australia
Post by: agent_clone on March 15, 2015, 05:10:54 AM
I'm not sure at what age childrens savings accounts can be opened but they frequentlly have high interest rates.

Commenting on the shares area, I'm not sure what the go is with shares specifically, but I know that when my grandmother passed away and my sister and I inherited a few thousand dollars each mum decided we should put the money into managed funds.  My sister was 14, an I was 16, there were limited options that would allow us to invest, I at 16 had more options than my sister as well.

Then again, that was 15 years ago so things may have changed since then...
Title: Re: Investment vehicle for children - Australia
Post by: This_Is_My_Username on March 23, 2015, 08:29:51 PM
Quote
"Scholarship Funds" ASG - Australian Scholarship Fund is probably one of the better known ones.


this is a huge scam.

scam.

http://barefootinvestor.com/australian-scholarships-group-asg/

http://forums.whirlpool.net.au/archive/1757805