I have two young children (5 years & 1 year) and want to start investing on their behalf. I would like to contribute to this as they grow and possibly use funds for tertiary education etc. What are the best options for this, particularly for tax purposes etc.
The investment options open for your children are essentially the same as those for adults, except there are different tax treatments for children under 16 earning either less, or more, than certain amounts per annum.
A bank savings account can be opened and a Tax File Number is not mandatory for children. Any earnings from a savings account of less than $120 per year will not attract any tax or require a tax return.
Amounts from $120 to $420 per annum won’t attract tax either, but a birth certificate or TFN will be needed. Otherwise PAYG can be levied at a rate of 49%. Children earning more than $420 a year will need a TFN or they will be levied tax at the 49 per cent rate. A tax return would then be required to obtain a rebate.
In the case of other investments, such as a share portfolio, you would need to weigh up the benefits of buying shares in your own name on behalf of your children, and paying tax on earnings accordingly, or buying them in their own names. If you buy them in their name, you can use your own TFN. As with savings accounts, amounts earned above $420 will need to lodge a tax return to claim a refund for any tax withheld or franking credits.
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