Can you buy equities in a child’s name?
This is a great idea, but the accountant can make or break the result. There are a few things to consider. You can buy shares for a person who is under 18, however:
1) The ASX:
From their perspective, the account must be in the form of a trust. This isn’t a formal trust that is set up and signed off each year. It’s an ASX account name with a designation eg/ John Doe <Child Doe A/C>. Parents need to provide full ID (eg/ 100 points) and often the ASX broker wants to see the child's birth certificate before finalising the account. 2) The TFN:
The minor/trust account uses a parent’s TFN, eg/ John Doe’s personal TFN in the example above. Even if one’s children have their own TFNs, it is still a parent’s TFN on the account. 3) Tax returns
Having the parent’s TFN on the account means that the dividend income and franking credits are automatically added to the parent’s personal tax return.
This causes headaches when the parent lodges their own tax return, as the income is not theirs – to resolve this, the tax return of the child/ren needs to be lodged first and the income/franking credits claimed under their TFN.
After the child's return has been completed, the parent can lodge their own personal return with the SAME accountant. This way the accountant doesn’t make the parent pay tax on the income for the children.
Note: This works well BUT the parent must double-check that the accountant has removed the automatic/pre-fill income information before lodging! 4) Wealth transfer - how the child gets access to the funds
While there is no gift tax in Australia, there are gifting thresholds for transferring wealth to children. Currently the limits are up to $10,000 per financial year, and up to $30,000 over five consecutive financial years.
$500 is the minimum share purchase on the ASX. If investments are over the child's 'gift' threshold for the financial year (FY), then the children may be paying maximum tax brackets on all future income. It's best to check with the accountant who will be submitting the tax returns, how they would deem the income.
Even if the income and its income starts off small, clients have had accountant issues when the children get over the FY income tax-free thresholds and that’s one certain way of ruining the excitement of growing wealth for children!
Click here to speak to an Adviser about how to manage your children's investments.