There are a few ways you can buy shares on behalf of your child in Australia:
It's worth keeping in mind that each of these methods will have its own tax implications, which you can read about here.
Like with any investment, there's not going to be any one-size-fits-all "best" investment for a child.
However, if you're investing on behalf of a child, chances are you're looking at an investment you'll hold for years or decades to come.
Over the long-term, exchange-traded funds that track the performance of popular stock indices have outperformed many other forms of investment.
For example, the ASX 200, which tracks the 200 largest companies on the Australian Securities Exchange (ASX), returned an average of 9.2% p.a. between 1993 and 2023.1
This means if you had invested $1,000 on behalf of your child when they were born and managed the same average return as the ASX 200, your child would have around $4,875 by the time they turned 18.
It's a similar story in the US, where the S&P 500 averaged a 10% p.a. return over the same 30-year period.
There are a few key features of ETFs that make them a popular long-term investment. They're a relatively affordable way to invest in the stock market, but more importantly, are an easy way to automatically diversify your portfolio.
Most ETFs are also rebalanced over time based on the performance of certain stocks, which means you don't need to constantly monitor the market yourself. This makes them a popular "set and forget" investment.
The simplest way to buy shares for your child can be to simply purchase them using your existing share trading account and then holding the stocks on your child's behalf.
Once your child turns 18, you can have these shares transferred to an account in their name. However, this will likely trigger a tax event, and you'll also generally need to pay a transfer fee.
As the shares are held under your own name and tax file number (TFN), you're also responsible for any tax obligations that arise from either selling the shares or earning dividends before they are transferred to your child.
The second option is opening a new share trading account that lists you as the trustee. If you plan on taking this approach, you may first want to apply for a new TFN for your child and then provide this number when opening the account. This means that all tax events will be declared on your child's tax return instead of your own.
Once your child turns 18, you can then transfer the shares into a brokerage account held in their name. Again, you'll likely need to pay a transfer fee to do so.
The advantage of this approach is that capital gains tax typically won't apply when you transfer the shares to your child – the shares were always meant for them, so there's no change in beneficial ownership.
It's also relatively easy to set up a trust account and many brokers offer dedicated minor trust accounts.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
For some parents, the best approach may be to set up a discretionary family trust.
The trust then purchases shares on behalf of your children, who are listed as beneficiaries of the trust.
Setting up a trust can offer certain tax benefits, but it can also be a complicated and expensive process.
For most mum and dad investors who are creating an investment account for their children, a formal trust might not be the most cost effective option.
However, if you think a trust could be worthwhile, contact your accountant or financial adviser for details on how to get started.
The person that owns and controls the shares must declare any dividends as well as capital gains and losses from share sales to the ATO. But it's worth noting that the ATO has rules in place to stop parents from trying to dodge their tax responsibilities by hiding investments in their child's name.
As a result, if your child holds shares in their name and earns more than $416 in investment income during a financial year, you'll need to lodge a tax return on their behalf. Unfortunately, they may be taxed at the highest current tax rate.
If a parent owns the shares in their own name or if the parent invests as a trustee, they must declare dividend payments and capital gains tax events on their own tax return. With this in mind, it may be a good idea for couples to put any such investments in the lower-income earner's name.
Formal trusts also have their own tax rules.3
Buying shares for children is a great way to help provide a more secure financial future for your kids, but it's also complicated. It's well worth seeking advice from an accountant to help you compare and choose investment options for your children.
When in doubt, you should always speak to a trusted industry professional.
| Response | Female | Male |
|---|---|---|
| I have never invested in the stock market | 46.6% | 28.39% |
| 18-24 | 12.11% | 18.55% |
| 25-29 | 12.27% | 17.81% |
| 30-34 | 10.28% | 11.32% |
| 35-39 | 5.47% | 6.86% |
| 40-44 | 4.48% | 5.94% |
| 45-49 | 2.82% | 2.6% |
| 50-54 | 1.49% | 2.6% |
| Under 18 | 1.99% | 2.23% |
| 55-59 | 1.16% | 1.86% |
| 60+ | 1.33% | 1.86% |
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