Build up shares for the kids

It’s a great idea for Ja­son to ...

Money Magazine Australia - - ASK PAUL -

Q Can you please ex­plain the tax­a­tion im­pli­ca­tions for pur­chas­ing shares “in trust” for chil­dren (be­low the age of 18)? Who re­ceives the frank­ing cred­its? Par­ents hold­ing the shares in trust or the chil­dren? If the chil­dren re­ceive the frank­ing cred­its, are they then re­quired to sub­mit a tax re­turn to re­claim the com­pany tax paid?

My daugh­ters are nine and six and hold shares in West­pac, NAB and Tel­stra. The ex­pected gross div­i­dend in­come for the year is $700. Also, would you rec­om­mend a div­i­dend rein­vest­ment plan (DRP) or cash for div­i­dends?

Good ques­tions, Ja­son. Buy­ing shares for the kids is a great idea. My par­ents did this for me and so did my wife and I for our kids. Who­ever holds the shares, whether “as trustee” or not, pays the tax. We held our kids shares “as trustee”, then trans­ferred them when they turned 18. No cap­i­tal gains tax is payable on this trans­fer as the “ben­e­fi­cial owner” does not change. This meant we paid tax on their div­i­dends but it was not a big deal thanks to the frank­ing cred­its.

I do like DRPs for kids, as it re­ally helps to grow the in­vest­ment. But you do need to hang onto the records as each DRP buys shares at a dif­fer­ent price and date in terms of fu­ture cap­i­tal gains tax cal­cu­la­tions. I can’t tell you enough what a great idea this is. By do­ing this for me, my par­ents kick­started me into a prop­erty and busi­ness. It also gave me knowl­edge of share­mar­kets. Our three kids are now adults and the money and knowl­edge built up over 20-plus years in shares has been a great help to them.

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