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Buying or Gifting shares to a minor

We are seeing an increase in parents and grandparents wanting to buy/gift shares for their minor grandchildren. From this we are commonly asked about the process and ramifications of buying shares for, or gifting shares to, a minor. Below are some scenarios and commonly asked questions to help with your decision. (G. = the person gifting the shares.)

 Scenarios:

Gifted Shares, Minor Receives Income:

  • buys shares on behalf of minor;
  • Any dividends received go into minor’s bank account;
  • Minor declares the dividends on tax return;
  • When the shares are sold, any capital gain or loss will belong to the minor.

Gifted Shares, G. Puts Shares in Minors Name but G. wants the Income:

  • buys shares in minor’s name;
  • receives dividends and uses for personal expenses;
  • declares dividends on tax return;
  • When the shares are sold, any capital gain or loss will belong to G.

Gifted Shares, G. Puts Shares in Their Name but Will Give to Minor Later:

  • buys shares in their name;
  • Dividends are declared by G.;
  • When minor turns 18, ownership of shares is transferred to minor;
  • Shares are treated as if they were disposed at their market value, which may incur capital gain or loss for G.;
  • Minor is now in full control of shares, any capital gain or loss from selling shares will now belong to minor.

Commonly Asked Questions:

What if the minor doesn’t have a TFN?

Unless working, the majority of minors will not have a tax file number (TFN). When you buy shares you are asked to provide a TFN and if not provided then Pay as You Go (PAYG) tax will be withheld at 47% from any unfranked (untaxed) dividend income received.

If you do provide a TFN when buying shares, you pay taxes on the dividends when the tax return is lodged. If the shareholder is a minor with a TFN, you should provide the minor’s TFN at the time of purchase. In the instance a parent or grandparent is the trustee for the minor, provide the parent or grandparents TFN.

Who declares the dividends?

Whoever rightfully owns the shares (whoever’s name they are in) needs to declare the dividends, along with any net capital loss or gain from the sale of shares.

When should a minor with shares lodge a Tax Return?

If a minor owns shares and earns more than $416, a tax return is required to be lodged. If less than $416 a tax may still be required to recover franking credits. If in doubt check with your accountant.

Do all trading sites allow trading on behalf of minors?

No. Not all sites are able to trade on behalf of minors, such as Commsec. What you can do is open an account in the name of an adult who will act as trustee until the minor turns 18. The shares can then be transferred into an account in their name. Beware of the capital gains tax that may apply through doing this.

If you would like to discuss this matter please feel free to call us on 07 54379900.

References used ATO and Commonwealth Securities Limited.