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Unfortunately children that age are not allowed to sign contracts etc, which is probably a good thing! Therefore the bank, or share etc will go in an adults name, and therefore the interest or dividend included in the adults Tax return.
Unfortunately children that age are not allowed to sign contracts etc, which is probably a good thing! Therefore the bank, or share etc will go in an adults name, and therefore the interest or dividend included in the adults Tax return.
4. Regardless of the name and type of the account, the essential question that must be asked is: 'Whose money is it?'. If the money really belongs to the parent, in the sense that the parent provided the money and may spend it as he or she likes, then the parent should include the interest in his or her return. If it belongs to the child and the child's total income from all sources is less than $416 no tax is payable and no tax returns will be required.
5. The answer to the question 'Whose money is it?' must inevitably depend upon the facts of each case. If, for example, the account is made up of money the child has received as birthday or Christmas presents, pocket-money or money from newspaper rounds, childminding, etc., then the money in the account should be regarded as that of the child.
6. On the other hand, if the account contains a large sum of money careful examination is needed to decide where it came from and whose money it really is. There will be other cases where, although an account is opened by a parent in a child's name, the parent spends or intends to use the funds in the account as if they belonged to the parent. In such cases the money in the account will be treated as belonging to the parent.
Unfortunately children that age are not allowed to sign contracts etc, which is probably a good thing! Therefore the bank, or share etc will go in an adults name, and therefore the interest or dividend included in the adults Tax return.
Just watch out -as MRY has said, and the ATO link confirm, the child will be taxed if the money is truly theirs, and are very heavily taxed if you go over certain taxable income. Also Alex, yes they can receive trust distributions, taxed heavily again if if receiving too much income,
Also note these are legal entitlements and therefore the child does have a legal call to them.
What else would be a good idea to buy my little poppit which will benefit him with a bit of $$$ - besides investing in art.......not really my thing or i can afford :O)
thanks for all your replies.......still unsure as to what to do.
What else would be a good idea to buy my little poppit which will benefit him with a bit of $$$ - besides investing in art.......not really my thing or i can afford :O)
smiffy
Insurance bonds can avoid penalty rate income tax for children whilst building their wealth.
Or persuade an elderly relative to write the children into a testamentary trust as part of their will.
Of course you have already done this for yourselves.
Estate planning starts before birth and ends 80 years after death !!
Cheers,
Rob
BACK in 1990, when I wrote my second book More Money, I included a chapter called "The Fairy Godmother and the Magic Train". The intention was to show the power of compound interest, and it told a fable about a fairy godmother who visits all new parents to tell them about a train that could take the child to wealth.
The fare to take the journey is just $2.74 a day ($1000 a year) provided the parents start immediately, and the payoff is that the child should have more than $6 million at age 65 which is the end of the journey. The figures are based on the assumption that the money is invested in quality share trusts, and that the trusts earn an average of 10 per cent a year if all income is reinvested.
A seat on the train costs virtually nothing if they start paying that $1000 a year from year one. However, as each year passes its value grows as compounding works its magic. Therefore, a person who delays starting the program will have to pay an increasingly heavy price to join the train if they wish to have the same sum at age 65 for an investment of just $2.74 a day.
Time passes quickly. This month we found ourselves celebrating the 21st birthday of our youngest child. It only seems such a short time since we had three children under four now they are aged 21, 23 and 24.
Yes, the magic train is a great concept unfortunately, like most people, I never got around to starting. However, being one who likes to ponder on what might have been, I did some calculations to find out what the outcome would have been if I had made the time to invest that paltry $1000 a year into a managed fund that matched the All Ordinaries Accumulation Index.
The eldest, now aged 24, would have $164,000, the second would have $122,000 and the youngest, who just turned 21, would have $89,000. Notice the impact of time on the investment. Because the youngest is four years younger than the eldest, her theoretical portfolio would have been worth about half as much as his, because the length of time of her investment would have been four years shorter.
It encouraged me to do some more calculations. If we made no more contributions to the eldest son's $164,000 portfolio, it would grow to $8.8 million at age 64 if the investment could average 10 per cent a year. That's a return of $8.8 million for a total investment of $24,000 (24 years x $1000).
Now think about somebody who is reading this, who is aged 24, and becomes sold on the idea of having a portfolio worth $8.8 million in 40 years time. Because they are starting from scratch they have to invest $1380 a month ($16,560 a year) to reach their target of $8.8 million.
Yes, the person who put away $1000 a year from birth and then stopped at age 24 outlays only $24,000 for a return of $8.8 million. The one who delays the program and then starts at age 24 has to find a staggering $662,400 to end up in the same place. This is the cost of delay.
Naturally this raises the question that we must all ask ourselves: why don't we start these programs? Probably because deep down we all have an active impatience gene that makes us resist any course of action where results only appear over time.
It's easier to choose a harsh lose-three-kilograms-in-seven-days diet than one that requires a slight adjustment to our eating habits that will result in our losing six kilograms in 12 months.
There is also the age-old problem of getting so involved in immediate problems that we neglect planning for the future. Maybe, with a new financial year approaching, it might be a good time to reflect on what we have done in the past 12 months to get some money working for us. Remember, the three main places money can come from are you working, your money working, or from welfare.
Welfare is being continually tightened so if you intend to ever give up work it makes sense to start accumulating some capital for your retirement as soon as you can. The earlier you start the easier it is.
Noel Whittaker is joint managing director of Whittaker Macnaught, AFSL number 246519. Email him at [email protected]. This advice is general in nature and readers should take their own expert advice before making financial decisions.
That's a good point. Income of a child received from a deceased estate or testamentary trust is taxed at adult rates, which means up to $16,000 pa tax free per kid. (who says kids cost money!).
Rob, do you have a view on whether money gifted after death to a testamentary trust could qualify to be taxed at adult rates? eg you kick off a testamentary trust with old uncle Jack. He has $100 and leaves it to a trustee to be held for a class of beneficiaries. The trustee then receives a gift of $1,000,000 from Jack's nephew (or maybe even a loan?) who then invests that money and, as trustee distributes $16,000 pa to his 10 kids who pay no tax = $160,000 pa potentially tax free. Would this work, or would only the initial $100 of the trust and the income generate from this be taxed at adult rates?