Structure matters more than most people realise.
Many parents and grandparents want to start investing for their children. It’s a great instinct.
But how you structure those investments can make a significant difference to tax outcomes and long-term flexibility.
When buying shares for a child, people often don’t realise:
• Who provides the money matters
• Who controls the investment matters
• Where the dividends are paid matters
• And whose Tax File Number is quoted matters
If structured incorrectly, dividend income can be taxed at up to 47%. In some cases, children’s income is taxed at the highest marginal rate. That can dramatically reduce the benefit of investing.
The ATO looks beyond just whose name is on the shares. They consider who is the genuine beneficial owner. That determines who must declare the income and any future capital gains.
There are also ongoing considerations:
• If your child earns more than $416, a tax return may be required
• Dividend reinvestment plans don’t avoid tax
• Transferring shares later can have capital gains consequences
For some families, investing directly in shares works well.
For others, structures like formal trusts or investment bonds may offer advantages, particularly where long-term compounding and tax efficiency are priorities.
There is no one-size-fits-all answer.
The right structure depends on:
• Your child’s age
• Whether the money is a gift or earned income
• Whether you want control until age 18
• Whether you may need access to the funds
• Your broader estate and tax planning strategy
The goal is not just to invest.
The goal is to invest correctly.
If you’re thinking about putting money aside for your children or grandchildren, have a chat with us first. A short conversation upfront can save years of unintended tax outcomes and help maximise the benefit for them..
Important Information:
Clear Sky Financial Pty Ltd (ABN 36 634 263 148) is a Corporate Authorised Representative No.1299668 of InterPrac Financial Planning Pty Ltd (Australian Financial Services Licence Number 246638).
The information in this article is general in nature and does not take into account your objectives, financial situation or needs. Before acting on this information, consider whether it is appropriate to you, and seek personalised advice where required.
