Managed funds using kid's TFN?

[manny]

Hi,

I did my taxes yesterday & the accountant suggested now that the Managed Fund unit prices are low, we change the TFN (Tax File Number) for the managed funds we hold for the kids (which are under my wife's name in trust for each kid) to the kid's TFNs (kids are 7 & 9 years old). I know managed funds won't allow funds to be in kids names, hence why we used my wife's back then as she is on a lower tax bracket. He seems to think that by leaving the wife's name as it is, we can just change the TFNs to reflect the children (which will trigger CGT during the change, but wouldn't be bad in today's climate/prices), but future income/dividends will be tax free as the income will be under $6k for each child...

I didn't think this would be possible, your thoughts?

Cheers,

Manny.

 

[Lily House]

Hi Manny,

I know that the tax-free threshold for children is not the same as for adults.

I don't know the exact figures off the top of my head, but if you look up the ATO website you should be able to find it quite easily.

Something like the first $800 or so of unearned income (for children) is untaxed, then after that the tax rate jumps up to 60% or something extremely high. It was introduced to stop parents investing significant amounts in their children's name, as a way to avoid tax.

Lily

 

[Pushka]

You will also have to pay stamp duty on the transfer - it isnt just a simple matter of crossing one out and adding another. Also, kids can only earn I think around $600 and then the tax rate is around 50% - to avoid people minimising their tax through their kids. They certainly do NOT get the benefit of the $6000 tax free threshold; the only way kids can get that, is if they are truly working for a salary; investments arent included.

And your accountant should really, really know that! It is basic stuff.

 

[GreatPig]

The tax-free threshold on non-exertion income for minors is currently $1,666 (2007-2008 financial year). After that I believe tax is 66%.

GP

 

[manny]

Thanx for the replies...

The funny thing is that he (the accountant) said that kids can earn up to their threshold ($6k tax free) as income they earnt & would be separate to the $1666 earlnings they may be allocated via say a Family Trust... Something doesn't make sense...

Cheers,

Manny.

 

[LynnH]

manny

In relation to the income of minors, the $1,666 threshhold applies to unearned income (i.e. income from investments, dividends, family trusts, etc). The normal $6,000 threshhold applies to income from personal exertion (i.e. money earned from doing a paper round, working at Maccas, washing cars for money, etc).

Cheers
LynnH

 

[manny]

Hi Lynn,

would you however class money earnt from the managed fund as "money" they earnt? that is what confused me, seeing the kids are only 7 & 9yrs old...

He seems to think that funds earnt from the Managed fund is money they would have earnt...

Cheers,

Manny.

 

[Pushka]

Hi Lynn,

would you however class money earnt from the managed fund as "money" they earnt? that is what confused me, seeing the kids are only 7 & 9yrs old...

He seems to think that funds earnt from the Managed fund is money they would have earnt...

Cheers,

Manny.

Income from Investments (bank accounts, managed funds, trust distributions etc) is Passive; these cannot be included in the $6000 threshold. In order to get the threshold benefit, as Lynn says, kids under 18 have to be actively employed, sweep floors, make hamburgers, deliver newspapers etc and they receive a tax certificate with salary and tax deducted. My son has just turned 18 so it has been a good year tax wise!

Yes the kids have earnt the money in the sense it has been distributed to them, it just cant be included in the threshold! I think your accountant is having a bad day.

 

[LynnH]

manny

Sorry, I didn't re-read your first post today - I read only post #5. I have corrected my post to remove the reference to your accountant being correct.

Income/distributions from Managed Funds are definitely not earned income - as Pushka says, you actually have to perform physical work for the income to be classified as earned income. Anything else - be it from rental income, income from money given to you by a benevolent grandmother, shares, managed funds, interest earned, trust distributions etc etc - cannot be classified as anything but unearned or passive income.

Cheers
LynnH

 

[manny]

Hi Lynn/Pushka,

thank you for that, I think I'll leave the ownership/structure of the kids's managed funds as they are... I think I may have given my accountant a headache

Cheers,

Manny.