Tax options when investing for a kid

When creating a Kids Account, you can provide your kid’s tax file number (TFN) if they have one.

Whether you provide a TFN or not changes what tax you can expect to pay, and the evidence you’ll need to keep of beneficial ownership.

To check the best way to structure investments for a kid’s future, we recommend speaking with a licensed financial adviser.

See the ATO website for an explanation of the tax treatment on children’s share investments and tax rates applicable to minors.

For accounts set up on behalf of a minor using the kid’s TFN, the adult acts as a trustee until the kid reaches 18.

At age 18, the account can be transferred into the kid’s own name. Because the kid is the beneficial owner of the account, the transfer is generally not treated as a capital gains tax (CGT) event, which means that there’s no tax payable on the transfer.

Even though using the kid’s TFN is good evidence that the kid is the beneficial owner, we recommend you also keep evidence of beneficial ownership.

That means evidence showing that the money used for investing came from the child, or that it was gifted to the child. It’s also good to record who made investment decisions, and where any income was paid to.

Keeping evidence helps answer any questions the ATO may have at time of transfer. For examples, see our article on evidence of beneficial ownership.

For accounts set up on behalf of a minor where no TFN is provided:

You’ll need to provide evidence showing that the money used for investing came from the child, or that it was gifted to the child. It’s also good to record who made investment decisions, and where any income was paid to.

It’s important you keep evidence of beneficial ownership as it may help answer any questions the ATO may have at time of transfer. For examples, see our article on evidence of beneficial ownership.

At age 18, the account can be transferred into the kid’s own name. Because the kid is the beneficial owner of the account, and you’ve kept evidence to support this, the transfer shouldn’t be treated as a capital gains tax (CGT) event, and there’s no tax payable on the transfer.

For accounts set up on behalf of a minor using the adult’s TFN, the adult will be treated as the beneficial owner of the account.

At age 18, the account can be transferred into the kid’s own name. As this is likely considered a transfer of ownership from the adult to the kid, the transfer will likely be treated as a capital gains tax (CGT) event. This means that the adult will be responsible for any tax payable on the transfer.