The BFG Report

Welcome to the August 2023 Edition of the BFG Report 


Child Investments

Parents and grandparents may wish to set aside savings for their children or grandchildren for various reasons, such as education or a deposit for a home.

Before investing money for a child, it is important to understand who will be responsible for paying tax on the investment income and what tax rates might apply.

Understanding the tax implications of children’s investments can help you structure the investment appropriately and choose an appropriate investment type for your situation.

How do child investments work?

Investing on behalf of a child can be complex because a child generally can’t hold an investment in their own name and penalty rates of tax can apply to the investment income.

If money is invested for a child in a bank account, term deposit, managed fund or share, the owner of the investment will usually need to be a parent, grandparent or guardian ‘as trustee’ for the child. The taxation of any investment income will largely depend on who is using the income from the investment.

If the trustee of the investment (i.e., the parent, grandparent or guardian) is the source of the money and the user of the investment income, they will generally be deemed to be the owner of the investment and will be required to include the income in their tax return. Capital gains tax may apply if the trustee transfers the investment into the name of the child once they become an adult.

However, if the trustee invests on behalf of the child and the funds are used only by the child, then the child may be deemed to be the owner. In this situation, the child will usually be liable to pay tax on the income at penalty tax rates and capital gains tax may not apply at the time the investment is transferred into the name of the child once they become an adult.

Child penalty tax rates

Penalty tax rates apply to income earned by a child except in the following limited circumstances:

  • If the income is excepted income – which includes employment income and income from the investment of property from a deceased estate or family breakdown,
  • If the child is an excepted person – which includes a child who is working full time, permanently disabled or permanently blind.

In the above situations, the child’s excepted income will be taxed at adult tax rates, which means the child gets the benefit of the $18,200 tax-free threshold.

In all other circumstances the income earned by a child will be subject to the following penalty tax rates:


Taxable income Tax payable*
$0 – $416 Nil
$417 – $1,307 66% of each $1 exceeding $416
$1,308 and over 45% of the entire amount

*Medicare levy may apply


Other investment options

Some investment bonds and education savings plans have been specifically designed for children and may be simpler to use for investing from a tax point of view. These products are ‘tax paid’ investments, which means that tax is paid within the investment and there are generally no tax implications for the child or the trustee whilst the investment is held.

  • Investment bonds are tax paid investments with earnings being taxed within the bond at the rate of 30%. After 10 years, the bond is fully tax paid and can be withdrawn without any tax implications to the investor. You can contribute up to 125% of your previous years’ contributions. However, if you exceed this amount the ten year period will re-start.
  • An investment bond called a ‘Child Advancement Policy’ is held in the name of an adult on behalf of a child. The child must be under age 16 at the time of application and the adult can nominate a future date prior to the child’s 25th birthday for ownership of the bond to transfer to the child. If no date is nominated, the bond will usually transfer to the child upon turning age 25.
  • Education savings plans, or scholarship plans are also tax paid investments with earnings being taxed within the plan at the rate of 30%. The plan can recover up to 30% of the tax paid if funds are used to provide for the child’s education expenses, such as uniforms, travel costs, fees, books, living away from home allowance and residential boarding expenses. Withdrawals can result in additional taxable income which may be subject to higher rates of tax.

Superannuation investments

Superannuation contributions are preserved until retirement, which should be considered when deciding whether to contribute to super on behalf of a child.

Although there are no legislative restrictions on superannuation funds accepting contributions on behalf of a child, a fund may have its own restrictions.

All contributions made by parents, grandparents or the child are usually non-concessional contributions (NCCs) and limited by the NCC cap. These NCCs can be released and used towards the purchase of a first home under the First Home Super Saver Scheme (FHSSS), but not until after the child turns 18 and satisfies all other requirements for the Scheme.

Contributions made to a child’s superannuation account by an employer of the child will be taxed at 15% in the fund. Other contributions made on behalf of a child are not taxed in the fund.

Other things you should know

  • Excessive amounts invested on behalf of a child may cause the ATO to look further into the transaction to determine whether the trustee of the investment should actually be deemed the investment owner.
  • Centrelink customers who invest money for a child are required to notify Centrelink within 14 days as it may impact their entitlement.
  • Tax advice should be sought to confirm the tax treatment of child investments.

Investment Market Review – Quarter ended 30 June 2023


  • Global GDP growth in 2023 is projected to be 2.7% according to the OECD, the lowest annual rate since the global financial crisis, with the exception of the 2020 pandemic period. A modest improvement to 2.9% is forecast for 2024.
  • Annual OECD GDP growth is projected to be below trend in both 2023 and 2024, although it is expected to gradually pick up through 2024, as inflation moderates, and real incomes strengthen.
  • A combination of high inflation and modest wage increases led to falling real wages in 2022. Many governments rolled out extensive support to cushion the effects of high energy and food prices on households. Over the course of 2023, real wages are projected to stop declining in most OECD countries.


  • Share market performance was positive for the June quarter.
  • Global shares ex-Australia produced a great return of 7.6% on an unhedged basis and 7.1% on a hedged basis.
  • Within Fixed income markets, both Australian government bonds and credit lost ground this quarter. The main Australian fixed interest index, the Bloomberg AusBond Composite 0+ Years Index was down 2.9%, while the Bloomberg AusBond Credit 0+ Years Index fell 1.1%.


Asset class performance to 30 June 2023 (total returns in AUD)

Asset Class 1-mth 3-mth 6-mth 1-yr 3-yr 5-yr 7-yr 10-yr 15-yr 20-yr
Australian equities (S&P/ASX 200) 1.8% 1.0% 4.5% 14.8% 11.1% 7.2% 8.9% 8.6% 6.7% 9.0%
International equities 3.1% 7.6% 17.5% 22.6% 13.5% 11.5% 12.5% 13.2% 9.9% 8.4%
Australian REITs 0.0% 3.4% 3.9% 8.1% 8.1% 3.5% 3.3% 7.7% 5.1% 5.2%
Australian bonds -2.0% -2.9% 1.5% 1.2% -3.5% 0.5% 0.8% 2.4% 4.2% 4.2%
Cash (AUD) 0.3% 0.9% 1.7% 2.9% 1.0% 1.2% 1.3% 1.7% 2.6% 3.5%

Sources: Bloomberg, IOOF calculations

* AUD total returns as at Jun-23 assuming reinvestment of dividends unless otherwise specified

** Returns reflect index performance excluding any fees; Actual ETF/managed fund performance will vary due to both fees and tracking error.


High yielding internet savings accounts

Financial Institution Interest Rate** Financial Institution Interest Rate**
Macquarie Bank 5.55% BOQ Future Saver 5.50%
ING Savings Maximiser 5.50% Rabobank Australia 5.40%
MOVE Bank Growth Saver 5.50% Great Southern Bank 5.35%

** Rates may be inclusive of introductory rates and are subject to conditions and change. Rates are correct as at 27/07/2023.


Important Note – The BFG Report is published for your interest and every effort is made to ensure it is accurate and contains general securities advice only.  It is not possible, when preparing The BFG Report, to take into account individual clients’ investment objectives, circumstances, and needs.  Before acting on any information or advice contained, expressly or implicitly, in The BFG Report you should consult a Representative of Baldry Financial Services Pty Ltd trading as BFG Financial Services (“BFG”).

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