Minors & Property

From: Donna L

My husband is a solicitor. He refers me to
the Minors (Property & Contracts) Act,
1970 (NSW) Section 19
"Where a minor participates in a civil act
and his or her participation is for his or
her benefit at the time of his participation,
the civil act is presumptively binding on
the minor." A contract is a civil act.
This reverses the common law position
wherein a contract with a minor was
presuptively void unless the minor could
show that it was in his beneficial interest.
The present position is that anyone
contracting with a minor may generally
presume that the contract is in the
beneficial interest of the child and the
onus is on the child to demonstrate that it
was not if he wants to rescind the
With relation to the return of goods by
In practise, any parent of a child who
attemjpts to return goods may generally
be declined. Firstly, the parents are not
party to the contract (the contract is
between the child and the shopowner)
and have no right to challenge the
contract. Secondly, it is difficult to
conceive of a situation where a child (or
his parents) can demonstrate how the
purchase of clothing or books or jewellery
is not in the beneficial interests of the
child. There may be policy reasons why a
shopkeeper may wish to refund the
money but this is a separate question to
the legal position.
All of this is separate to the question of
whether a child may obtain credit. A
cursory examination of the relevant
legislation in NSW does not reveal any
legal reason why a minor may not obtain
credit. Of course, various lenders may
have policy reasons for not extending
credit to minors but this has nothing to do
with the law and it may be possible to
challenge such a policy under the
Anti-Discrimination act in NSW.
Finally, questions of marriage are a
Commonwealth matter as they fall within
the Federal Constitution and serve to
confuse this discussion.

By way of example, my son then aged
sixteen, wanted to invest his savings in a
Managed Fund with a large insurance
company. The prospectus stated that if
her were under 18 he needed a trustee
and the initial advice was that the trustee
would pay tax at their marginal rate of tax.
However, there is a clause in the tax act
that states that a minor may pay normal
rates of tax on money earned and
invested (as opposed to money gifted
etc). We contacted the Insurance
Company and said that as this was his
own earnings and he worked full-time so
he should be allowed to invest in his own
name. They said their policy was not to
accept subscriptions from minors. We
returned that they could have all the
policies they wanted but could not be in
breach of the Anti-Discrimination Act in
NSW. Dead silence on end of phone.
How were they discriminating? The Act
says that if, in all other respects, the party
satisfies the requirements of the
transaction, they cannot be discriminated
against due to sex, age, ethnicity etc.
Therefore, as my son, under the
proposed arrangement, would pay tax at
his parent's marginal rate of tax and
would incur capital gains tax on transfer
of the assets into his own name at the
age of eighteen he was being
discriminated against.
It ran through their Legal Department and
the outcome was in our favour. (There
were some tax concession matters but
they were dealt with.) The upshot was that
my sixteen year old son did manage to
purchase units in a managed trust in his
own name.

If any solicitors out there have any case
law pertaining to minors and their rights
in such cases we would be very pleased
to hear from them.

Donna L
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Reply: 1
From: Tibor Bode


Thanks to your hubby and to you for the info. I have a 7 years old who has investment (PDF) in her name. Fortunately they did not ask when it was originally invested what was her age, but now I know how to handle it. I also wanted to invest in her name in managed funds, but the silly policy would not let me.
Now I know how to handle it.

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Reply: 1.1
From: Donna L

Tibor - Note that I did say there were
some tax issues. If the money is invested
on BEHALF of your child then you will
continue to attract tax at a punitive rate i.e.
around 60% I think for a child on
unearned income. This is to deter
parents from offloading large amounts of
money and the income from it to their
children. (In this case it is probably better
to have a Trust or invest as a trustee.)
Unless of course she is a child model,
child actor, tennis star, sweatshop
employee etc and the money is EARNED.
I was merely pointing out that should
someone under the age of eighteen want
to invest their own earned income they
are legally allowed to do it and to make
contracts. In my son's case we agreed
not to declare his tax file number until he
turned eighteen as this meant they took
the highest rate of tax out to satisfy their
burden of requirements to the ATO which
required considerable paperwork
otherwise but he gets it back in his tax

Donna L
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