ASX Shares Minor and DSSP/BSP

Hi all, has anyone had any experience with or ran the calcs on investments in AFI/WHF with DSSP selected.
I’m aware you forfeit franking credits etc but seeing as a minor is taxed heavily above a low threshold is it worth the trade off?

 

Comments in this thread

Purchasing Shares for Children

 

Couldn’t find an answer to this question in that thread mate.
Was more around the tax implications and loss of franking credits, whether the benefits outweigh the cost of the loss of the franking credits, especially as minor earns no income.

 

Now that I've posted that, have a think of an administrative issue down track. It is this. How do you arrange for the shares held under say SatayKing <SatayKing Jnr A/C> to be subsequently only in the name of SatayKing Jnr?

If held under a SRN then for AFI/WHF, etc, the share registry for them has a Transfer of Shares to a Beneficiary.

https://cda-au.computershare.com/Content/09831aaf-abbb-4370-9ad9-01a8867dc974

There may be a cost to effect the transfer.

I discovered where held under CHESS originally your child (now an adult) will need to go through a broker, open up an new client account and receive a new HIN.

 

Got ya, bro. Never went down that path obviously as mine got the original funds from a Deceased Estate and adult tax rates applied.

You could try using the DSSP price history for AFI, which is on its web-site, and give some modelling of scenarios against foregone franking a whirl.

I've always wondered what reaction of the ATO could be if, out of the blue, a 18 yo suddenly fronts up with a sale of shares and, say, a $50K CGT event occurred. Where did you get the money for those? Who owned those shares originally?

My fevered brain working overtime again.

PS: Just before they turn 18, sell the lot, pay any tax and then give them the cash. Cleanest outcome you will ever get.

 

Yes, it does seem the simplest way forward.
Might just do a small investment in AFI/WHF dssp and VGS drp.
Mainly to be able to show in practice the power of compounding/time and investing as opposed to only saving (purchasing power erosion)

 

An additional matter to keep in mind @Silverson. No big deal but it's there.

INCOME TAX ASSESSMENT ACT 1997 - SECT 104.10 Disposal of a CGT asset: CGT event A1

 

Transfer of shares from a trustee to an absolutely end tiled beneficiary doesn’t trigger cgt. I can’t remember the legislation off the top of my head but have a tax tip on it

 

Yes. According to the legislation - if I read it correctly:

(2) You dispose of a * CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner.

This is an interesting read as well.

Re Helen Kaye Herdegen and Kenneth John Herdegen v Commissioner of Taxation [1988] FCA 419 (2 December 1988)

 

Waiting for the little ones TFN to be established, then buy time. Let’s see what almost 17.5 years of DSSP and drp can produce! Would of been lovely if my father frequented the pc forum 30 odd years ago and set up a little future fund for my good self!

 

Thanks. There are some cross-over matters so I decided I'd respond in this thread.

When the arrangements were established to invest on behalf of my children, I knew zero about bare trusts and the legal aspects. I still know little.

Setting it up was easy but a few years before my eldest turning 18, I started to wonder how I removed my name from the holdings. I assumed, wrongly it seems, there would be a simple one-off form. There wasn't one I could find and I discovered after various talks with those with more knowledge than me, the approaches I indicated above applied.

It wasn't an arduous task by any means but it wasn't as simple as I first believed.

Although I was aware no CGT would apply when my children became wholly and solely responsible for their holdings, I also wanted to know the legislative aspect to reassure myself and them. Again after a few chats with others, I was directed to the relevant section of the ITA.

There have been many posters on this forum with similar thoughts along the lines of what you are proposing but little thought is apparently given as to what needs to happen administratively when junior reaches 18.

One other small matter which could arise when Mum & Dad are holding shares on behalf of their children is when corporate action such as an SPP occurs. All depends of how flush with funds the family is of course but if they are going to go all in with when an SPP is on offer this is relevant:



That is a standard requirement in every SPP I've seen so if the parents want to take up the maximum themselves and have the funds to do the same for their children, possibly only one application will get through if the relevant certificate isn't provided.

Anyway, those are my thoughts I decided to jot down in case anybody reads this thread.

Still didn't prevent the ATO come knocking on my door asking me to cough up. It could have gotten worse if instead of one FY it looked at all the years involved which is why it was important for me to prove I didn't own either the investments or the income. That is where thorough record keeping comes into play in my view.

 

@Silverson I forgot to mention once Junior gets a new HIN all previous transaction history is no longer viewable in the share registry under the previous HIN - at least that is what I found. Nor does any transaction history transfer to the new HIN. If you haven't kept the records yourself and want it, you may have to pay either the registry or the broker to reconstruct the history.

My kids had to register with the share registries as they discovered their TFN wasn't recorded under their new HINs and they had to also self-certify under FACTA/CRS. Took a little guidance from Dad initially.

Plus consideration may need to be given to cancelling the old broker account.

 

Ahh thank you for that advice! I had not even considered this! If jnr ever decides to sell down(against my teachings) this is invaluable.
Thanks again

 

No probs. Maybe a good approach to put the processes down in dot point form and save it somewhere along with any share transaction history.

 

@Silverson I just remembered a small twist you may need to keep in mind. If Jnr does decide to take legal ownership at some stage (and they should) and has a new HIN, s/he will forgo any brought forward balance for the shares. You could fight it I guess. Depends on how much effort required to get less than $20 or so.

However, with Vanguard, it will pay out the brought forward balance to the account nominated under the previous HIN, so it may be an wise not to close that account until the payment appears.

 

Noted, thank you!

 

@Silverson another aspect to keep in mind about timing of the transfer of legal ownership. Could be best to do it after the end of the FY unless you really like dealing with two lots of data.

Geez, some of the posts on this forum really do jog my old and fading memory.

 

Appreciate you sharing this.
If owned in bare trust, A/C, is the legal ownership the minor or parent? On who’s tax return is the income etc assessed?
I’m assuming junior, the beneficiary?

 

I'm not a lawyer so whatever I may post cannot be taken as the written word on these things. I only learnt bits and pieces during discussions with qualified people and still know very little.

In my children's case everything was established via a Will - poorly written I was informed but a Will nevertheless - in which they were named as beneficiaries and each entitled to a percentage of the estate which I then invested on their behalf. The Will did not establish a Testamentary Trust but they were taxed on any investment income as if they were adults and the $416 limit, or whatever it was at the time, did not apply to them.

Each had a TFN, separate broker and bank accounts which then received any tax refunds. While they were minors, I did make all the investment decisions and arranged for their separate tax returns. Until they decided to take full ownership of their shareholdings and remove me from any involvement, once each turned 18 I did zero unless they provided me instructions. That approach was suggested to me after consulting with a partner of a legal firm.

As you can see from this, the situation was different from that which you are establishing

From what you have posted you have applied for TFN on Junior's behalf and were looking at DSSP's (no income) and VGS (DRP but still it's income albeit low.) If it's not accounted for under their own TFN (tax return or no tax return) it is possible the ATO could attribute the income to Mum/Dad but it is better if you seek professional advice on that matter.

By the way, as I've posted elsewhere, despite each having a TFN, it didn't stop the ATO attempting to hit me with additional income tax on the investment earnings of one my kids. Took an effort and a half to resolve but it's where having access to copies of their tax returns for that period and the relevant bank statements were very useful. No idea how many privacy laws were breached in the process though.

 

The trustee is the legal owner the child is the beneficial owner. The beneficial owner is the one that is taxed.