Can I do this?

[Harriet]

Hi All,

I haven't visited in a while . . . but I'm back with another one of my famous silly questions.

Is it possible to buy an IP in the name of your child? My husband and I have picked an IP, and thought it would be neat - from a tax point of view! - to buy it in the name of our seven-year-old. Can this be done?

Cheers,

Harriet

 

[asy]

Hiya Harriet!

Welcome back!!!

Short answer: Yes, you can buy a property in the name of a child. It can be registered, but they cannot sell it until they can prove that they understand the ramifications of the sale. (Or until they are 18).

The only other problems are that, under 18's can't sign valid contracts, so you may have to go guarantor for them, also there's the whole issue of finance. I'm sure Rolf will answer regarding that, but, I believe it's impossible to get finance without a guarantor.

asy

 

[MF35]

Also what about the ownership issue?

I mean it might save you tax, and I know people like to think they'll always be on good terms with their children, but what happens if you're not on such good terms when he turns 18. Effectively he'd be able to do what he liked with the house.

What if he shacks up with a 'good sort' he is in love with and she leaves him twelve months later with half the house? Seems to me you want to be prepared to lose the lot and view it as a gift or you might have dramas down the track.

Could you acheive the same benefits through a Trust? Where you could divert income to him as a beneficiary to take advantage of his low tax rate and pay his way as a child without giving up control of the asset.

Depends what you're trying to acheive I guess. Ie - giving him the house permanently might be your intention. Or you might be looking for a tax effective way to invest in this IP only and your proposal is just an option to acheive that means.

There may be other options or problems as well but these were just some thoughts that jumped to mind.

Good luck with it,

MF

 

[Rolf Latham]

Hiya

Minor cant borrow, but a trust can if guaranteed by adults

Ta

rolf

 

[Pedro61]

Also I was under the impression that investments in minors names were not that effective anyway (from a tax POV). i.e. dont they geta $600 or so tax free threshold but anything over that is taxed at 47c in the $ ???

I thought the ATO brought this routine in years ago to prevent just what you are proposing.

Or am I barking up the wrong tree?

Any accountants out there ??? tell me I'm wrong so we can have some more kids.

Pedro

 

[Elysium-M]

I think you're right pedro, although I can't remember what the threshold was.

Contracts such as to buy property or to borrow money are unlikely to be binding on a child, and anyone with half a business brain will tell you to forget about it unless an adult is on the hook too.

It seems that a trust structure may be the way to go. Sure the property isn't in the child's name, but are you sure the child is really ready to own property? May be worthwhile having a chat to a good accountant about this.

 

[Darren Ski]

Go with a discretionary trust

TOTAL flexibility / protection and tax advantage

The child will automatically be a beneficiary of the trust


Darren