Jim’s in-laws want to set aside a sum of money for their granddaughter, but he fears there may be tax implications for them and asks personal finance specialist Noel Whittaker for guidance.
My wife’s parents want to set up an investment for our two-year-old daughter with the hope of it being a worthwhile sum when she turns 21.
They are self-funded retirees and receive only the most basic Commonwealth and state assistance, such as free public transport and healthcare cards.
The sum they are looking to deposit is in the order of $10,000 to $15,000.
I have requested they do nothing until we can be sure they will not be adversely affected, and my wife and I have an understanding as to how we would set up the investment.
In a nutshell, I’m concerned about gifting from their perspective and any other tax implications we need to look into to ensure all is above board.
With regards to the investment, my preference would be a direct investment to a managed fund with a reputable fund manager, avoiding the use of a financial planner and paying commissions as this will be a set-and-forget type arrangement other than at tax time when I would imagine we would have to report income (your help with regard to tax reporting would also be appreciated).
Any guidance you can provide would be greatly appreciated, as it will assist me in asking the right questions and providing the right information to the fund manager when the time comes to make the investment (as I’m certain it’s not as straightforward as I’m suggesting).
A. There is no gift duty in Australia – the only time that gifting may adversely affect the giver is if they are receiving a whole or part Age Pension. This would not appear to be the case here but, even if it was, they could make two gifts of $10,000 each over two successive years without penalty.
The main issue is children’s tax, which cuts in at the top marginal rate once ‘unearned’ income exceeds $416 a year. This can be easily avoided by investing in an insurance bond about which I have written often over the past years. Because the tax is paid by the fund at a flat rate of 30 per cent per annum, there is never anything to declare on anybody’s tax return unless the bond is cashed in before 10 years have passed.
At any stage, the bond can be transferred free of capital gains tax to the grandchildren.
Do you have a question you’d like Noel to tackle? Email us at [email protected]
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature, and readers should seek their own professional advice before making any financial decisions.
* Not his real name
If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.
Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.