gajjitt

Hi all,

This topic has arisen before as part of other topics, thanks Alistair "kirsty&al" for your help.

I would be very interested to hear any other views on this subject, whether anybody who has recently migrated, has invested any more money in their childs CTF. Anyone who left the UK before March/April will wonder what I am talking about.
<link to CTF info> http://news.bbc.co.uk/1/hi/business/2936101.stm

Is anyone 100% aware of the tax implications on investing in this fund in the UK whilst they are an Australian citizen/resident. As I understand it the ATO (Australian Tax Office) see these as Foreign Investment Funds (FIFs),
http://www.ato.gov.au/individuals/co...e=4#P311_31628.

On looking at the ATO website it seems that there are exemptions if the fund interest is less than $50,000. I don't know if this means that there is no tax to pay if the fund is less than this or what.

I'd appreciate anyone else who might be in the same dilemma as us. We want to invest £1,200 for our 12 month old, and thought initially that this new fund would be a great idea. If Alistair is right in his previous thread then it sounds like we could be taxed at a high rate (47%? 66%?) as a penalty to stop tax dodging parents.

Thanks to all you parents.

Paul

Sir Les Patterson

hi paul don't know the answer to your question but we are in the same boat have a 2 year old with a fund and also got another baby due in august so would be interested to the implications when the move to oz happens
steve

gajjitt

I've contacted an accountant here who confirms my fears. Hmmm time to do some research:

He says:

With regards to residence and source of income, the Australian Tax Office wants to tax all income earned by residents of Australia regardless of where the source of that income is. If income is held in trust for your children by yourselves, you would then be liable for the tax payable on any interest earned.

paulb

We also have Child Trust Funds here in the UK. We were planning to leave them here and continue to pay into them for the next few years until maturity. We would then get the money paid into accounts in OZ. We are not talking fortunes here, maybe £10k each in about 12 /14 yrs time.

Paul

NedKelly

Child Trust Funds will be worth Jack Sh*t after the institutions have had their percentage year after year. They are just a ploy by the Labour government to keep votes from the lower eschelons of society.

kirsty&al

Hiya Gajjitt,

Just a few points.

The $50k limit for FIFs is a trigger point at which the ATO becomes interested in your FIFs. This limit is for you and your associates - which typically means your close family but can in some cases include others. FIFs generally include: endowments (term life policies), private pensions, group pensions, ISAs, PEPs, stake holder pensions (including ones for kids) and foreign managed funds.

If, as a family, you have less than the $50k limit then you don't have to report anything to the ATO (unless they pay out or you cash them in).

If you have more than the $50k limit then you have to report the increase in value to the ATO and pay tax accordingly. The tax is apportioned to the owners of the particular funds in proportion to the gain of each fund.

Note if you have if you have #1,200 in your child's trust and you as a family have more than the $50k limit then the increase in the #1200 is assessable for tax. However note that your child is allowed to $772 before they get taxed at 66%. This means that the fund can grow by 26.8% before you child is taxed (based on an exchange rate of 2.4 and current tax allowance - the figures will be different in the next year). Even if the fund grew 30% (an unlikely event) in 1 year, your child would only have to pay $60, but then they wouldn't have to pay any tax on the increase (#360 = $864) when it pays out.

With regards to your quote above - you need to be careful about the word Trust as it does not always mean the same thing (e.g. a Unit Trust is a different beast to a Discretionary Trust). I think the accountant may have been talking about the taxation of Family Trusts (which are usually Discretionary Trusts). In Oz tax law any money not distributed to the beneficiaries of the trust (and therefore taxed in the beneficiaries' names) is taxed under the trustee's name (generally not a good move). From what I read of the new Child Trust Funds they sound like ISAs for kids but with a locked in end date. I think the word Trust is being used more like the Trust in Unit Trust (i.e. a fund) than like Trust in Family Trust, the former would put it under FIF rules.

Hope this helps - if you need any clarification please feel free to ask. As I've previously said, I don't have any personal experience of the CTFs as I left before their introduction.
Cheers
Alistair