Tax on Trust or Minor stock trading account?

[gsp77]

Hi
I am planning to open comsec trust/minor account to buy some shares which I am planning to transfer to my kids when they turn 18. While doing the transfer when they turn 18 do I need to pay CGT or CGT to be paid only whenever kids sell it?
Thanks for the help.

 

[Austwide]

My understanding is this but, this is not advice and you need to get proper financial advice before proceeding.

Not sure how that type of account is structured.

GCT is only paid when the shares are sold or change ownership.

If the structure holds the shares in the kids name then no GST would be payable until sold.

Any dividends earned in the kids name would be taxed as non earned income and taxed at around 50%.

If in your name, your tax rate payable on dividends and CGT when sold or ownership changed.

 

[Warr87]

My understanding is this but, this is not advice and you need to get proper financial advice before proceeding.

Not sure how that type of account is structured.

GCT is only paid when the shares are sold or change ownership.

If the structure holds the shares in the kids name then no GST would be payable until sold.

Any dividends earned in the kids name would be taxed as non earned income and taxed at around 50%.

If in your name, your tax rate payable on dividends and CGT when sold or ownership changed.

i believe this is the case as well. given that people would abuse a high tax-free threshold for kids, you'd be paying the high tax amount for non earned income. (abuse as in, people 'distributing' income on paper to kids in order to avoid tax with a trust setup. people use it for its genuine purpose but not all ... )

 

[Belli]

Hi
I am planning to open comsec trust/minor account to buy some shares which I am planning to transfer to my kids when they turn 18. While doing the transfer when they turn 18 do I need to pay CGT or CGT to be paid only whenever kids sell it?
Thanks for the help.

Children's share investments

If your child is under 18 years, and they buy shares, there is information on quoting a tax file number, declaring dividends and lodging a tax return that may help.

www.ato.gov.au

Have a read of the above ATO link before you start.

Consider whether you are going to apply on their behalf for a TFN or not. This may mean that, upon reaching majority, they will absolutely be entitled to the shares and can, if they wish, blow it all on black at the closest casino.

Also found this.

How to buy shares for children in 2024

The how-to guide for investing in your children's future - from trusts and trading accounts to tax obligations.

www.finder.com.au

 

[Belli]

Some additional information for you @gsp77.

One possibility as a work around to the tax rates which apply to minors on income over $416 is Bonus Share Plans. Essentially instead of opting for cash the shareholder elects to receive additional shares but in doing so forgoe all dividends and franking credits. Or do a mixture of Cash and Bonus Shares so the annual income is always below the $416 threshold. That's messy though.

As there is no income associated with Bonus Shares there is no need to report income to the ATO. It does have an impact of adjusting the cost-base of the original tranche of shares so very good records need to be maintained - which should happen in any case.

However, one thought going around is to participate in these and once handed over to their children, the child can then elect to receive dividends as cash or participate in the Dividend Reinvestment plan either fully or partially. Still the issue of a TFN needs to be considered plus it's all home country focus and no international exposure.

There are five Listed Investment Companies which operate them: WHF, AFI, DJW, MIR, AMH. Each has detailed information on their respective websites on the Terms and Conditions. The share plans are called different names (Bonus Share Plan, Dividend Substitution Plans) but they are the same thing.

A number of individual companies also operate similar plan. Some of these are ANZ, NAB, ARB, QBE and there are probably others.

May seem confusing and complex but it just takes some time to work through it.

 

[Sharkman]

i wrote about another potential way to get around the tax rates on minors here: https://www.aussiestockforums.com/t...hildren-and-capital-gains.35873/#post-1100641

just to reiterate, i have not tried this myself, only read about it, you absolutely must speak to an accountant if you want to try something like that.

a discretionary trust would also help avoid the CGT on transferring of ownership, when they become adults you (as the appointor) just have to switch over the trustee from yourself to them, to give them control over the assets without paying CGT (as the beneficial owner hasn't changed). there are costs to setting one of these up and maintaining it though, so you'd have to work out for yourself whether it's worth it depending on how much assets you're planning to put in there.

 

[Warr87]

i wrote about another potential way to get around the tax rates on minors here: https://www.aussiestockforums.com/t...hildren-and-capital-gains.35873/#post-1100641

just to reiterate, i have not tried this myself, only read about it, you absolutely must speak to an accountant if you want to try something like that.

a discretionary trust would also help avoid the CGT on transferring of ownership, when they become adults you (as the appointor) just have to switch over the trustee from yourself to them, to give them control over the assets without paying CGT (as the beneficial owner hasn't changed). there are costs to setting one of these up and maintaining it though, so you'd have to work out for yourself whether it's worth it depending on how much assets you're planning to put in there.

that's the structure I have, a discretionary trust. but income still has to be distributed. though I read your post and I'm sure some try it, I am certain my accountant wouldn't let me. She's conservative though but it seems questionable. Depending on the amount being distributed, than a bucket company would be more appropriate.

 

[Belli]

The possible issue with bucket companies, etc is having to involve lawyers as they are the only ones able to advise on legal aspects. The accountant is likely to set it up but hopefully gets the trust deed draft by the legal wallas. Depends on how dedicated you are and how much money is involved I suppose.

For the simpler side of things for children, eg Belli Snr <Little Belli Jnr A/c>, Mum and Dad likely have entered into a Bare Trust arrangement and when the child reaches 18 yo, they can demand the assets and parents have no discretion in the matter. Today to reach $416 pa about $7k would need to be invested at 5.7% which includes franking. Rough figures only there.

 

[Warr87]

The possible issue with bucket companies, etc is having to involve lawyers as they are the only ones able to advise on legal aspects. The accountant is likely to set it up but hopefully gets the trust deed draft by the legal wallas. Depends on how dedicated you are and how much money is involved I suppose.

For the simpler side of things for children, eg Belli Snr <Little Belli Jnr A/c>, Mum and Dad likely have entered into a Bare Trust arrangement and when the child reaches 18 yo, they can demand the assets and parents have no discretion in the matter. Today to reach $416 pa about $7k would need to be invested at 5.7% which includes franking. Rough figures only there.

I don't need a bucket company just yet but it may be on the table in the future. My accountant will set it up for me. Not sure I will need any legal advice for it, but I'm sure some may. While it's not necessary to need an account for a trust, I would advise it. This would be another expense.

I do like your idea of the bonus shares program. probably the most sensibly solution unless its a substantial amount in which a trust may be more applicable.

 

[gsp77]

My thinking is to buy some shares/ETF with Comsec trading accounts(trust/minor) and pass it to kids when they turn 18. So to avoid CGT during the transfer I should use kids TFN on the comsec account and pay more tax on the divedents?

 

[Warr87]

that is probably the easiest option tbh. If you are unsure about the additional burden of taxes, you could vary your tax contribution to take out an extra $xx amount each pay (its what I actually do tbh). I'd rather trickle pay a small amount of tax each pay then be hit with a tax bill at the end.

 

[Dark1975]

Hi
I am planning to open comsec trust/minor account to buy some shares which I am planning to transfer to my kids when they turn 18. While doing the transfer when they turn 18 do I need to pay CGT or CGT to be paid only whenever kids sell it?
Thanks for the help.

I didn't see it mentioned though you can create a trust in any name and put yourself and wife or who ever as the trustee and beneficiaries to the account.
Once your kids reach over the age of 18 yrs old you can list them as beneficiaries or modify the trust ( hence you get the term - trust fund babies) Very lucrative tax haven compared to a company.
pls Dyor

 

[gsp77]

I didn't see it mentioned though you can create a trust in any name and put yourself and wife or who ever as the trustee and benefices to the account.
Once your kids reach over the age of 18 yrs old you can list them as benefices or modify the trust ( hence you get the term - trust fund babies) Very lucrative tax haven compared to a company.
pls Dyor

Thanks, do I need kids TFN in the comsec share trading account(trust)?

 

[Dark1975]

Thanks, do I need kids TFN in the comsec share trading account(trust)?

You will need to speak to your accountant first about creating the trust !
Once the accountant has created the trust he will generate through Asic/A.t.o the T.F.N ,
Though more important to discuss the best way to structure the trust , As you can disburse profits to the beneficiary or beneficiaries . And unlike a company the payment through the trust is not like a company where it needs to be paid. ( i might stop there ?) speak to the accountant

 

[Warr87]

I didn't see it mentioned though you can create a trust in any name and put yourself and wife or who ever as the trustee and beneficiaries to the account.
Once your kids reach over the age of 18 yrs old you can list them as beneficiaries or modify the trust ( hence you get the term - trust fund babies) Very lucrative tax haven compared to a company.
pls Dyor

a discretionary trust is also called a family trust. if i have kids in the future they could automatically be added as beneficiaries due to the enacted trust deed. be careful with having a non-incorporated trustee. with an incorporated trustee, you simply change the director of the company. otherwise it could be difficult to change who the trustee is.

i'm not sure but kids can be beneficiaries even before they turn 18. but they still get taxed.

i have a CPA do my returns as there is more involved in this structure.

 

[Dark1975]

a discretionary trust is also called a family trust. if i have kids in the future they could automatically be added as beneficiaries due to the enacted trust deed. be careful with having a non-incorporated trustee. with an incorporated trustee, you simply change the director of the company. otherwise it could be difficult to change who the trustee is.

i'm not sure but kids can be beneficiaries even before they turn 18. but they still get taxed.

i have a CPA do my returns as there is more involved in this structure.

Yes that's correct .
My first post stated tho to put kids as a beneficiary after they turn 18, And did mention he should speak to his accountant ?

 

[Belli]

with an incorporated trustee, you simply change the director of the company. otherwise it could be difficult to change who the trustee is.

Not so difficult if the appointer, who has ultimate control over the wealth of the trust and can hire or fire the trustee, decides to exercise that right.

 

[Warr87]

Not so difficult if the appointer, who has ultimate control over the wealth of the trust and can hire or fire the trustee, decides to exercise that right.

was thinking more about the untimely passing of the trustee. can't remember if that would mean the unwinding of the trust but either way, i'm a fan of a coporate trustee. but everyones circumstances are different.

 

[Belli]

was thinking more about the untimely passing of the trustee. can't remember if that would mean the unwinding of the trust but either way, i'm a fan of a coporate trustee. but everyones circumstances are different.

The constitution of the company probably or hopefully references Section 1072A, 1072B and 1072D of the Corporations Act to cover that situation - as well as mental impairment and bankruptcy.

CORPORATIONS ACT 2001 - SECT 1072A Transmission of shares on death (replaceable rule--see section 135)

www5.austlii.edu.au

 

[Belli]

was thinking more about the untimely passing of the trustee. can't remember if that would mean the unwinding of the trust but either way, i'm a fan of a coporate trustee. but everyones circumstances are different.

The constitution of the company probably or hopefully references Section 1072A, 1072B and 1072D of the Corporations Act to cover that situation - as well as mental impairment and bankruptcy.

CORPORATIONS ACT 2001 - SECT 1072A Transmission of shares on death (replaceable rule--see section 135)

www5.austlii.edu.au

@Warr87 one consideration is to think about gifting your shares in non-fixed and fixed trusts to your Executor via a Will. That would be passing effective control. Legal advice though so best to discuss this will a solicitor well versed in these matters.