Term Deposit Investing in kids name

[Ptolemy]

Hi

I am hoping there is a grizzled tax accountant out there which can give me a steer on whether what I am proposing is considered tax avoidance / evasion or not.

Both my kids have IRD numbers and banks accounts which allow them to open term deposits in their names on-line. They are too young to work so have no other taxable income. Can I open term deposits in their name without it being considered tax avoidance.

Both my wife and I pay the top marginal tax rate on our term investment income (or PIE top rate) but obviously my children only have to pay 12.5%.

Any rules on this - can't find anything on IRD site or the net so I am assuming it is OK to do.

Any guidance or suggestions where I can find out more about this much appreciated.

[Snapper]

Hmm, I'm not grizzled (a little bit grey, maybe) and I'm not an accountant but I do a lot of tax returns so what you're describing does sound pretty much like tax avoidance. I imagine you're talking about reasonably substantial sums here to make it worthwhile but you can't just use someone else's IRD number to reduce your tax.

[Ptolemy]

I have done a bit more research on this since I posted. It seems the issue isn't one of reducing tax it is one of gift duty. You can only gift $27k per annum and if you gift more than $12k you need to lodge a gift declaration statement with IRD.

Does anyone else have anything more concrete?

[CJ]

I have done a bit more research on this since I posted. It seems the issue isn't one of reducing tax it is one of gift duty. You can only gift $27k per annum and if you gift more than $12k you need to lodge a gift declaration statement with IRD.

Does anyone else have anything more concrete?Sounds about right. interest should be earned by the persons whos money it is. How do you get that money to the kids - you have to gift it.

[winner69]

Just be careful if it is a substantial amount that you don't break any gifting rules (hopefully soon to be abolished)

Wouldn't money in your childrens accounts become THEIR money? Only they could withdraw it I thought .... or do caregivers/guardians have that right these days. You might never see it again? Unless you treat it as a loan to them and have some dicumentation to that you maybe could be heading down a dnagerous path

What the attitude soemtimes is heck whose going to find out anyway

[Jay]

Dangerous territory I would think.
I know the IRD somtimes come back to you and say, "..where did that interest go that you have been declaring previously" if is a substanial sum, (happened to a family memeber a few years ago - had a substantial sum then for awhile , then the additional income disappeared (went to purchase a property) then again they may not even notice.
Diclosure not an accountant and a bad typist!

[peat]

gifting to family member for their support is not dutiable actually as long as its not considered excessive.
but you're pushing it because its not really for their support unless you let them spend the interest.
a family trust doesnt solve the problem (much) either as the kids under 16 would have to pay trustee rates of tax (currently 33%)


Gifts exempt from gift duty
These types of gifts are not subject to gift duty:
– small gifts, up to $2,000 total value to any one
recipient in one calendar year, as long as they are
part of the giver’s normal expenses
– gifts for support and education of relatives
(provided these gifts are not excessive)


here are the links to read re gift duty if you wish to study up on it yourself

http://www.ird.govt.nz/resources/1/c/1c3534804bbe58ddbfb8ffbc87554a30/ir194.pdf

http://www.ird.govt.nz/resources/4/5/4556c4804bbe58dfbfcaffbc87554a30/ir195.pdf

this is the sort of wording you're facing up to re the legislation on avoidance


Tax avoidance arrangement means an arrangement, whether entered into by the person affected by the
arrangement or by another person, that directly or indirectly -
(2) Has tax avoidance as its purpose or effect; or
(2) Has tax avoidance as one of its purposes or effects, whether or not any other purpose or effect is
referable to ordinary business or family dealings, if the purpose or effect is not merely
incidental:

...

Tax avoidance in sections BG 1, EH 1, [EH 42,] GB 1, and GC 12, includes -
(2) Directly or indirectly altering the incidence of any income tax:
(2) Directly or indirectly relieving any person from liability to pay income tax:
(c) Directly or indirectly avoiding, reducing, or postponing any liability to income tax:

[Aaron]

My two cents worth would be you could loan the money to your kids with deeds of debt being created to ensure its not treated as a gift with a marshal clause requiring interest only when demanded. The problem would be explaining to an IRD auditor how the whole thing hasn't been setup to avoid tax and or increase family assistance entitlements.
You could use the deeds of debt and gifting to transfer you money into a trust to cap the tax at 33%. It may even help to scam a little family assistance depending on kids and income.
There could be opportunities to distribute to the kids over 16yrs to fund university study or something before they start earning on their own.

[Snapper]

My two cents worth would be you could loan the money to your kids with deeds of debt being created to ensure its not treated as a gift with a marshal clause requiring interest only when demanded. The problem would be explaining to an IRD auditor how the whole thing hasn't been setup to avoid tax and or increase family assistance entitlements.
You could use the deeds of debt and gifting to transfer you money into a trust to cap the tax at 33%. It may even help to scam a little family assistance depending on kids and income.
There could be opportunities to distribute to the kids over 16yrs to fund university study or something before they start earning on their own.

What's the difference between illegally trying to minimise your tax and what Shane Jones, Chris Carter et al have been doing?

[Aaron]

Different issue. Excessive or wasteful spending by politicians and bureaucrats is a waste of tax dollars not the avoidance of paying tax.

[peat]

its just different sides of the ledger really innit Aaron?
tax avoidance may be separate from tax evasion but these days its still illegal

todays Herald article will probably ensure you decide to act scrupulously Ptolemy
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10652317&pnum=0

[shasta]

its just different sides of the ledger really innit Aaron?
tax avoidance may be separate from tax evasion but these days its still illegal

todays Herald article will probably ensure you decide to act scrupulously Ptolemy
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10652317&pnum=0

You can pay your kids up to $20 per week tax free (no paye due to the rebate), if you put it into there a/c, but thats only $1040 per year.

Not sure whether you actually need to be an employer to do it, but same principle applies if you were to put in small amounts regularly i doubt the IRD would be that interested given the small amounts involved

[CJ]

You can pay your kids up to $20 per week tax free (no paye due to the rebate), if you put it into there a/c, but thats only $1040 per year.

Not sure whether you actually need to be an employer to do it, but same principle applies if you were to put in small amounts regularly i doubt the IRD would be that interested given the small amounts involvedIf you are not a business, you dont get a tax deduction so it doesn't really matter.

[peat]

we dont need an answer belg
it is avoidance.

an arrangement, whether entered into by the person affected by the
arrangement or by another person, that directly or indirectly -
(2) Has tax avoidance as its purpose or effect;

[777]

There used to banks where you could put money in an account for your children's education. IIRC the accounts were in the children's name. They earned the interest but the money was held for their education or use sometime down the track.

Anyway with PIE accounts tax maximum of 28% from October why not just accept it?

[Ptolemy]

Thanks for all the replies guys. It has been helpful. Given the kids actually do have an education account I have decided to gift them the amount they would have been drip fed over the next few years into their account now - that way they get the benefit of the compound interest early.

cheers