My mother has given me $5000 to invest in some shares for my six-month-old daughter to save some money for university fees in the future. Do I put the shares in my name or my daughter’s name? What are the tax implications of this?
This is a fantastic idea and something your daughter will certainly appreciate in the future.
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There are a number of things to consider when purchasing shares for children.
The main thing to be aware of is that children can’t legally own shares so the easiest option would be for you to own the shares. However, your daughter’s name can be in the account designation, which means that you will effectively be acting as a trustee for her.
When your daughter turns 18, you will be able to transfer the shares into her name.
The tax implications of any dividends on the shares will depend upon how the money is used. If the dividends are saved for your daughter to access when she turns 18, she will be taxed on all the income generated by the shares.
However, if you spend the dividends then you will be taxed on that dividend income and any capital gains if you happen to sell the shares, despite you being the trustee.
This is because although you held them on behalf of your daughter, you effectively received the benefit of the shares.
If the dividend income is saved for your daughter for the future, she will only need to lodge a tax return if she earns more than $416 in a financial year.
It is worth noting that your daughter may be able to claim franking credits, which is tax the company has already paid on their profits, which they then distribute to shareholders.
To do this you must lodge an application for a refund of franking credit.
If you are having any challenges with the process of purchasing shares on behalf of your daughter, I would advise you contact your accountant or your financial planner for assistance.
If you would like more information of this topic or have another tax question e-mail me at tax.albury@crowehorwath.com.au.
This information is general in nature and readers should seek specialist advice before making financial decisions. Crowe Horwath (Aust) Pty Ltd ABN 84 006 466 351. Liability limited by a scheme approved under Professional Standards Legislation other than for the acts or omissions of financial services licensees.
