Confused, difference b/w Realised CG, CGT, earnings for Kids investment

Hi folks

First, thanks for reading this thread. I'm grateful for the wise eyes here.

I've been researching for best vehicle for my daughter's investment and
in respect for your time, mindful to try not repeat what has been already asked in the forum

Situation details:
Timeframe: at least 10-15 years (she's almost 2)
Investing style: Passive set and forget with regular contributions
wife on 34k (for next few years)
I'm on 35k (that will increase with business startup)

I'm keeping in mind 3 things:

• tax efficiency,
• growth and
• associated fees (entry, exit, annual MER, brokerage etc)

I'm trying to work out what is the best vehicle to invest for my kid with the 3 factors above mentioned and it's doing my head in, to be frank

Since investing strategy is passive, from my little knowledge, I've narrowed it to following vehicles:

Index funds
Insurance bonds

Am also considering ETFs and LICs but mindful of cost in brokerage fees

= = =

Q1
In managed fund distribution talk (I assume that includes LICs, ETFs and Index)
What is realised capital gain vs capital gain (the CGT one)
is realised capital gain the churn inside the fund?
and capital gain when you sell off the units?

Q2
for realised capital gains and capital gains,
which is taxed at the CGT rate? (50% discount after holding for more than a year)
which is taxed at marginal income rate of holder?

Q3
Unsure what name to hold investment in, own name or kid's?
cos there is huge tax liability after $416 (unsure in ATO eyes, when a kid becomes an adult for that to go away)

Q4
For Insurance Bonds, there's the attractiveness of no CGT after 10 years
but taxed at 30% throughout (at the moment HIGHER than our income tax bracket so not good deal...)

I read somewhere about possibility of redeeming the fund in 8, or 9th year
(before 10 year maturity) and then taking the extra paid offset against other income.

Is that the TOTAL tax paid during time in bond
(eg yr 1, $100 tax paid, yr 2 $100 tax paid to year 9 = $900 tax paid TOtal)
offset against income tax payable eg $2000 for that 9th year financial year?

so total tax payable = $2000 - $900 = $1100

Q5
I'm just wondering if it's worth it - growth being equal - to invest in insurance bond paying 30% vs Index fund where when selling index fund, there is CGT at marginal tax rate

Thanks for reading this far and and contribution of your thoughts from your experience

Cheers

 

Hi,

You are investing for your daughter's future with passive investments, keeping it simple with index funds. Index funds have low churn turnover which means low realised capital gains. With less than 100k to invest and regular investment, index mutual funds are easy to manage. Over that ammount and ETF's are more efficient.

Govt and corporate bonds can be used instead of insurance bonds. They are also available as index funds/ETF's.



Johny

 

Thanks for your reply Johny - especially that 100k benchmark figure

Anyone know how can we determine which is more personal tax efficient for Index vs Insurance Bond?

Trying to find a calculator cos I'm not sure how to write it in excel?

ie Index's in our names subject to our marginal income tax rate and 50% CGT
vs
Insurance Bond - flat corporate 30% and no CGT after 10 years

 

I like Johny's advice. May also be worth speaking to a financial advisor such as the people at Strategic Financial Advice, Portfolio Management, Self Managed Super Funds | The Wealth Designers