Investing for Your Children: The Smart Way to Build Wealth for the Next Generation
- 3 days ago
- 5 min read
Many Australian parents and grandparents want to give their children a financial head start. Rather than simply saving money in a bank account, more families are investing in shares, ETFs and managed funds with the goal of creating long term wealth.
However, one of the biggest mistakes people make is assuming they can simply buy investments in their child's name without understanding the tax consequences.
The way you structure your investment today can have significant tax implications over the next 10, 20 or even 30 years.
Let's explore the options.
Can You Buy Shares for a Child in Australia?
Yes.
Australian shares and ETFs can be purchased on behalf of a child, although because children under 18 generally cannot legally own and manage brokerage accounts themselves, the investment is usually held by an adult as trustee until the child reaches adulthood.
This sounds simple, but taxation is where things become much more complicated.
The Tax Rules for Investment Income Earned by Children
Australia has special tax rules that discourage parents from shifting investment income to children.
This is known as "unearned income", which includes:
Share dividends
ETF distributions
Interest
Managed fund income
Capital gains
Children generally pay significantly higher tax rates on unearned income than adults.
For the 2025 to 2026 financial year, once a child's investment income exceeds relatively low thresholds, penalty tax rates can apply, reaching up to 66% on some income bands before aligning with the top marginal tax rate.
The purpose is simple.
The ATO wants to prevent families from reducing tax by spreading investment income across children.
What About Capital Gains?
Capital gains tax (CGT) also depends on who actually owns the investment.
Questions to consider include:
Is the investment legally owned by the child?
Is a parent holding the shares merely as trustee?
Is there clear evidence the investment genuinely belongs to the child?
Who originally provided the money?
These questions become extremely important when the investment is eventually sold.
Poor documentation can result in unexpected tax outcomes years later.
Should You Use a Family Trust Instead?
For many higher income families, a discretionary family trust can provide greater flexibility.
A trust can:
Hold shares and ETFs
Invest over many years
Protect family assets
Allow future income distribution flexibility
Assist with succession planning
Keep investments together across generations
However, trusts are not automatically better.
Unlike individuals, trusts generally cannot access the tax free threshold themselves. Income must usually be distributed each year, and there are additional accounting, tax return and administration costs.
Whether a trust is appropriate depends on your family's circumstances, investment goals and expected income.
Investing in Your Own Name
Sometimes the simplest option is also the best.
Holding investments personally may allow you to:
Access the 50% CGT discount after 12 months
Avoid complex trust administration
Keep compliance costs lower
Maintain simple ownership records
The downside is that all future investment income is taxed at your own marginal tax rate.
What About Investment Bonds?
Investment bonds are becoming increasingly popular for parents wanting a simple long term investment vehicle.
Potential benefits include:
No annual tax returns for the child
Tax paid within the bond
Potential tax free withdrawals after 10 years if conditions are met
Easier administration
However, investment bonds are not suitable for everyone and should be compared carefully against direct investing or trust structures.
ETFs vs Individual Shares
Many parents choose diversified ETFs instead of individual shares.
ETFs offer:
Instant diversification
Lower investment risk than owning only a handful of companies
Lower management costs than many managed funds
Simple long term investing
Whether investing personally or through a trust, ETFs often form the foundation of a long term wealth strategy.
Building Generational Wealth Is About More Than Tax
Tax is important, but it should never be the only consideration.
A well designed investment strategy also considers:
Asset protection
Estate planning
Flexibility
Future family circumstances
Cash flow needs
Long term investment goals
The best structure today may not be the best structure ten years from now.
Planning ahead can save thousands in tax while making future transitions much smoother.
Common Mistakes We See
Some of the most common issues include:
Buying shares in a child's name without understanding the tax rules.
Assuming children's income is tax free.
Mixing personal and children's investments.
Failing to document beneficial ownership.
Using a trust when the costs outweigh the benefits.
Ignoring future capital gains tax consequences.
Many of these mistakes are difficult and expensive to fix later.
Which Structure Is Right for Your Family?
There is no one size fits all answer.
The right structure depends on:
Your income
The amount you plan to invest
Whether you already have a family trust
Your long term wealth goals
Estate planning objectives
How many children you have
Whether the investments are intended as gifts or family wealth
A tailored strategy can help minimise tax while ensuring your investments continue benefiting future generations.
Thinking About Investing for Your Children?
Whether you're purchasing your first ETF, building a diversified share portfolio or considering a family trust, obtaining advice before investing can save significant tax and administrative headaches later.
At Dolman Bateman, we help Australian families structure investments efficiently, understand the tax implications and build wealth that can benefit future generations.
Contact our team to discuss the most appropriate investment structure for your family's circumstances.
Frequently Asked Questions
Is investment income for children taxed differently in Australia?
Yes. Investment income earned by minors is generally taxed under special rules that impose higher tax rates on unearned income above low thresholds to discourage income splitting.
Table 1: Tax rates for residents who are under 18 for 2025–26
Income for the year | Tax rates |
$0 – $416 | Nil |
$417 – $1,307 | Nil plus 66% of the excess over $416 (see Note) |
Over $1,307 | 45% of the total amount of the income that is not excepted income |
Can I buy shares for my child?
Yes. Shares can be purchased on behalf of a child, but ownership and tax treatment depend on how the investment is structured.
Is a family trust better than investing personally?
Not always. A family trust can provide flexibility and asset protection, but it also comes with ongoing compliance costs and may not suit every family.
Are ETFs a good investment for children?
ETFs can be an excellent long term investment because they provide diversification, relatively low costs and exposure to a broad range of investments.
Should I get tax advice before investing for my children?
Absolutely. The tax consequences of investing for children can be complex, and choosing the right structure from the beginning can avoid costly mistakes later.
Ready to Start Building Wealth for the Next Generation?
The best investment strategy is not just about choosing the right shares or ETFs. It is about choosing the right ownership structure from the beginning.
Whether you are investing for your children, building a family investment portfolio, or considering a family trust, getting professional advice early can help you minimise tax, protect your assets and avoid costly mistakes in the future.
At Dolman Bateman, we help Australian families structure their investments with confidence. We can advise on:
Investing in shares and ETFs for children
Family trust structures
Tax effective investment strategies
Capital gains tax planning
Asset protection and estate planning considerations
Long term wealth and succession planning
Thinking about investing for your children or building generational wealth?
Contact the team at Dolman Bateman today to discuss the most appropriate structure for your family's circumstances. A short conversation now could save you thousands in tax and provide greater certainty for the future.
Book a consultation today and start building wealth that lasts for generations.