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Kids owned shares

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Initiate

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Replies 6

Hi,

 

I hold a small portfolio of shares on behalf of my kids.

 

All activities related to their portofiols are kept separate from my own investments. Whenever they get cash gifts, those get deposited in their accounts and used to buy more shares. Most of the shares are set to either reinvest via DRP or DSSP.

 

From what I understand minors are not considered to have legal capacity and therefore cannot own shares in Australia.

Still the ATO suggests " If the shareholder is the: child, quote the child's TFN" or [if the shareholder is the] "parent, as trustee for the child and no formal trust exists, quote the parent's TFN"

 

(Source: https://www.ato.gov.au/Individuals/Investing/In-detail/Children-and-under-18s/Children-s-share-inves... )

 

The issue is further complicated by example 2 of the same page:

"Simon withdraws $5,000 from his bank account to buy shares in the name of his son Jordan. He quotes Jordan's TFN when he buys the shares.

Simon makes all the decisions about those shares as Jordan is only three years old.

All dividend income and any profit from the sale of those shares are deposited into a bank account in Jordan's name with Simon as trustee.

The dividends and capital gains are declared on Jordan's tax return."


I have searched to exhaustion but have not found a single broker that allows such options. Instead, they all setup arrangements where one of the parents acts a trustee without a Deed. Which fall under what the ATO describes as "trustee with no formal trust".

Since the trustee without a deed doesn't hold a TFN for the trust, doing a reuqest under his own TFN would cause the credit to be paid mingled to his own tax affairs and given that the ATO page above highlights the importance in maintaining separation between the financial resources of the "trust" and those of the the "trustee",  may I ask:

 

  1. Since the child is a beneficiary rather the owner of the shares, what TFN should be used in this case (trustee with no trust) and more importantly,
  2. what TFN should be used when the adult requests franking credit refunds on behalf of the minors? 
1 ACCEPTED SOLUTION

Accepted Solutions
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Most helpful response

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@TaxedoMask 

 

Thanks for the reply.

 

You note correctly when you suggest they are being held by me for their benefit.However, resources are kept apart for each child: we use separate accounts, passive income is either reinvested (via DRP or DSSPs), or whenever that is not available, credited to a cash management account associated with each child account.

 

The idea was to ensure we can have traceable separation of the resources as suggested here

Example 2

Simon withdraws $5,000 from his bank account to buy shares in the name of his son Jordan. He quotes Jordan's TFN when he buys the shares.

Simon makes all the decisions about those shares as Jordan is only three years old.

All dividend income and any profit from the sale of those shares are deposited into a bank account in Jordan's name with Simon as trustee.

The dividends and capital gains are declared on Jordan's tax return.

 

 

I suspect I will have to contact the Early engagement team on this one as well.

6 REPLIES 6
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Devotee

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1. Since the child is a beneficiary rather the owner of the shares, what TFN should be used in this case (trustee with no trust) and more importantly,

The question is who should hold the shares and what is more beneficial. Since passive income is typically taxed at the highest marginal rate for minors after $416 - it might not make sense for a parent wanting to hold funds for the benefit of their children (<18 y.o.) to have the assets in the name of the children. the concept of trustee with no trust merely defines the relationship between parent and child rather than a formalised legal relationship / obligation.

 

Now whilst there are no explicit laws barring minors from owning shares - there are complications and issues (separate to the tax ones) so it should be considered. (an interesting read here)  It also explains why generally ASX does not allow minors to be shareholders.

 

2. What TFN should be used when the adult requests franking credit refunds on behalf of the minors?

This then depends on (1) above. If the parents are holding the assets, then it's in their name so they claim the franking credit.

If the child is holding the asset then it is in their name.

 

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Initiate

Replies 4

Thanks for the reply!

It seems you steered the conversation towards a different direction, addressing the financial planning implications of investment.

 

I find it very hard to get anywhere conclusively in the financial planning front of this matter without taking in consideration the personal circumstances of the involved.

 

e.g. Parents could for example be already at the highest tax bracket and passive gains below 416 (and therefore direct ownership by the child a rational tax choice) or assets purchased could be designed to delay passive income in exchange for further taxation down the track (i.e. via bonus shares).

Given (1) I understand the tax implications of the choice, (2) the difficulty of addressing such type of questions; I must counter that the core of the question remains:

When the ownership is held by the parent for the benefit of the child, and the child has its own TFN, what TFN should be quoted in regards to the shares and which one should be used for lodgement.

The closer I got to a reply is this link (which happens to be related to Savings accounts but somewhat applicable):

https://www.ato.gov.au/Individuals/Investing/In-detail/Children-and-under-18s/Children-s-savings-acc...


I once again thank you for the reply.

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Devotee

Replies 3

If you hold a diversified portfolio on "trust" for your children but you control the inflows and outflows of the assets then from a tax perspective they're your assets and your TFN should be provided. - This is more likely that not the appropriate outcome.

 

The only time where it would be under the children's TFN is if you open the account for them specifically (ie their names are on the account). Based on your initial comment that they are held for your kids, I can only guess that this is just a pool of assets which you are investing with the intention of being used for your kids rather than your kids assets per se.

 

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@TaxedoMask 

 

Thanks for the reply.

 

You note correctly when you suggest they are being held by me for their benefit.However, resources are kept apart for each child: we use separate accounts, passive income is either reinvested (via DRP or DSSPs), or whenever that is not available, credited to a cash management account associated with each child account.

 

The idea was to ensure we can have traceable separation of the resources as suggested here

Example 2

Simon withdraws $5,000 from his bank account to buy shares in the name of his son Jordan. He quotes Jordan's TFN when he buys the shares.

Simon makes all the decisions about those shares as Jordan is only three years old.

All dividend income and any profit from the sale of those shares are deposited into a bank account in Jordan's name with Simon as trustee.

The dividends and capital gains are declared on Jordan's tax return.

 

 

I suspect I will have to contact the Early engagement team on this one as well.

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I'm new

Replies 1

Gday, I am wondering about the same questions as you. It really is difficult to find a definite answer out ther on this particular issue! 

I was just wondering if you got the answers you need and if so could you share them with me. 

Thanks.

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Community Support

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Hi @YoungInvestor

 

I recommend getting in touch with our Early Engagement team on this one.

 

Thanks, Ari