children accounts

As a parent (and a financial planner) I always encourage parents of young children to think about setting up investments for them because I know (from experience) how important it is to have funds put aside for their education or even giving them a little start in life when they turn say 21. All three of my children benefited from the savings plans that I had set up when they were young. If I could turn the clock back I probably would have put aside even more but hindsight is a beautiful thing. 

If you have set up an account or you are planning to set up a fund for the kids it is important that you are aware of the tax implications because special “higher” rates apply to incomes for minors, known as “children’s tax”. If the income earned by minors is caught under the “children’s tax” that it can be a very expensive exercise – here are the rates:

Up to $416                         nil tax

$415 - $1,307                      66%

$1,307 onwards                45% of the total amount of income

The ides behind the “children’s tax” is to discourage parents from transferring funds into children’s accounts to simply reduce their own tax bill. Technically, setting up children’s bank account should not be done to avoid tax.

Children bank accounts generally are opened in the parents name with the child’s name added to the bank account or the parent may open the bank account in trust for the child. In either case the funds are seen to be owned by the parent and the interest must be declared in that parent’s tax return.

The rule therefore is: because the parent owns the money – the parent must include the interest in their income tax return.

If you have already set up “children’s accounts” and you are not sure or concerned with how it will affect your tax position – feel free to call me or email me.