When putting away money for a child, many people invest directly in the child’s name or on behalf of the child using managed funds or other options where the investment is held in the adult’s name ‘as trustee for’ the child. This usually results in the creation of an informal trust arrangement. When making a decision in relation to the appropriate ways to invest for your children, it is important to consider the following key thoughts:

When investing for a child, there are a number of factors which will determine whether the income is taxed in the hands of the minor, the adult investing on the child’s behalf, or the trustee of a trust of which the minor is a beneficiary. This can become very complicated, so it’s important to remember to talk to your financial adviser before making any decisions.

Where the income is assessed as being derived by the child, the rate of tax payable by a minor depends on a number of factors, including:

Generally, income earned by a minor is taxed at special minor rates which are higher than adult rates, unless any of the above applies, and either the income is ‘excepted income’ or the minor is an ‘excepted person’. Unearned income derived by minors is generally taxed at the higher minor rate, except in special circumstances – talk to you financial adviser for more information on this.

Unearned income

The higher tax rates below apply to unearned income, which is generally passively derived income such as:

Your investment options

There are a number of options available to you if you’re considering investing for your child. The main options include:

These are the most common types of investment, however, some alternative options include:

What next?

We understand that investing for children can be a highly complex financial decision, and we’re here to help you make the right choice. If you’re looking to invest on behalf of your child but don’t know which option will work best for your personal financial situation, get in contact with our office for some expert advice.

Source: MLC Investments – Technical News, ‘Investing for Children’ 23rd January 2018