If a kid earns more than $421 (from buying and selling shares) - do they need to apply for a TFN? - do they need to complete a tax return? - can they purchase an ipad and claim it as a deduction / depreciate it over a number of years? (Used for tracking their investments) - what other deductions can be claimed? TIA
Yes. $416 is the basic floor. A lesser amount may also be a factor with tax losses, CGT losses and franking credits. However foreign tax credits wont be refundable. The child return needs to ensure M2 and A1 are correctly completed. A1 will report excepted income. That is income actually earned eg working part time at Maccas v's unearned income. Unearned income is subjective to punitive rates where maccas wont How old is the child and is it THEIR money ? If not it could be parental income in a childs name rather than in a child s return. I would have doubts a young child can use a ipad and trade etc. A parent acting as their trustee may be the user rather than the child. If there are few if any transactions the ipad may have no tangible purpose.
Thanks Paul Kids deliver catalogues and saved income is invested in shares - using their income. One child has $730 profit - this year how can I legally reduce how much they will pay in tax? Obviously they trade through my login but use a trust in their name. They are learning how to make their savings work for them - better than earning $1 per month in their savings account. Where would I find info on genuine legal deductions? I assume they could donate to a charity?
Can you explain this. What name are the share statements addressed to? Your name <Child's name account>?
A tax deduction is akin to spending $1 to save less. The issue is poor choice of structure. Have you considered an insurance bond. Tax free lower earning rates are better than high earnings at a high tax rate
Hi Paul I get what you are saying about spending a $1 to save tax. No I haven't considered an insurance bond. Would you be able to point me in the direction to learn more about these options?
What are they investing in? Are there franking credits also? Growth (with some income) rather than income assets maybe an option 'Earned income' should be taxed at ordinary rates shouldn't it? Do the kids have their own tax file number?
I will be organising TFNs for the kids as they will need to complete a tax return No franking credits in the shares that have been sold - spec buys and profits taken. They are holding a small parcel of CBA shares long term
Investment bonds: https://lifelongshuffle.com/2021/05...iabolically-ineffective-investment-structure/ Read the comments too
Another article explaining the truth about investment bonds: The truth about investment bonds — Passive Investing Australia
The question was about investment alternatives that avoid 66% tax for kids. That article doesnt even go there and address adults. IBs arent usually for adults and have a special use if they are. Perhaps asset protection that is independent. Insurance bonds are a "after tax" investment (not unlike shares ) so they are never "tax free" as such. They are tax-paid. The insurer pays tax on the way through so yes the return will be less than a direct investment but not 66% less. And you can have a IB that has a basis foundered on listed shares so its hydrid style of indirect investment in a specific class of asset. Akin to a property trust is to property or ETFs but with the after tax issues so that tax isnt paid on income or gains. And net income is compounded continually and not paid. A ETF or share investment that compounds continually must have tax paid by someone. Its also a complex record issue for CGT. An IB doesnt have any. 1. There is no CGT for the child when they receive the insurance proceeds in 10+ years time. Forget the 50% discount or even using losses - They wont have any. 0% tax is the aim. Tick 2. There is no taxable income taxed at 66% in each year. No returns to prepare or even consider. That avoids return costs as well as the tax. And the net income is reinvested so there is capital maintenance that compounds. And any income earned by a child would face top up tax and CGT annually. It erodes the capital base that is reinvested and compounds continually. Tick. And when the child turns 17 and works they investmnet incoem issue doesnt impact their tax return. Simple. It also means the investment isnt even fully known to them and may become a gift at the vesting date. Unlike a trust where it may not vest and be controlled by the trustee. That is very different. Imagine being 18 and tld you have $500K but its in a trust and you arent allowed to have it because your Father doesnt want you to have it ? And you know he has it invested in terrible shares ? That he has also picked badly in the past ? 3. Losing the ability to sell at a lower MTR doesnt matter when there is no CGT. 0% tax cant be impoved. Tick 4. Asset protection as the IB is not accessable to or capable of being mismanaged by persons who may make decisions as trustee for the child that arent sound. This can be especially appealling for grandparents to bypass their kids to give adirect benefit to grandkids that cant be spend or controlled or mismanaged by parents. Tick. 5. You can add to it (albeit with some limits). Or you can buy further bonds. Tick 6. The product itself discourages exit. The policy may be bonded and incapable of termination or the tax impact will discourage this. Further asset protection for the beneficiary (child). Tick. The typical strategy is asset protection for the CHILD. When they attain the benefit age they get a sum that is tax free. And then they can invest in shares, pay for education or property with zero consequences as selling isnt a tax trigger like all other investment choices would be. When a IB is obtained by a grandparent then the child asset rights may be bound and protected until they attain the age the granrparents consider they are free to make their own choices. IBs can also be purchased wth asset class choice. This allows indirect interest in shares in any event. Long term not short to medium term.
It is unlikely that a child will fund their own bond, so there is an asset protection risk if the funder becomes bankrupt - clawbacks.
It doesn't seem like there's a large holding here. And the income is small, tax payable will be tiny. I'd ignore the overly complicate responses and keep it simple. What a wonderful idea and great teaching moment for you to offer your children. @Owlet I've provided some links to good material that cover the many negatives of, and some of the vested interests behind the peddling of these products. Per the PIA article there are a small number of scenarios where they *might* be useful but honestly I would (and do) totally avoid them. I'm sure you'll make a good decision.
