Grandchildren Question

Question

I appreciate the money column. I have found the features included helpful. I have 7 grandchildren and wish to invest $1000 for each one plus ongoing monthly deposits. I have followed up the NZSX 50 Portfolio Index Fund (FONZ) and also a similar ASB Fund.

The column is quite helpful about what to avoid and also mentioned a while back taxation treatment for young people. But I would like to ask you is the taxation treatment for FONZ or ASB fund suitable for my grandchildren, three of whom are NZ citizens living in WA.

Darryl

Answer

I'm assuming that your West Australian based grandchildren are New Zealand resident tax payers. If this is the case all can be treated equally. If any income is earned from any source it is liable to taxation in NZ at their marginal rate, assuming an investment has not paid tax on their behalf. As I write this reply many index funds have a binding ruling from the IRD exempting the fund payment of capital gains tax. This is due to change as announced recently.

As growth style investment, that is tax effective, can cope with regular contributions and is reasonably flexible - FONZ is fine. Just make sure you understand the five, seven or ten year investment horizon that should be considered when investing into equities.

If any investment generates an income stream it will be taxable in the hands of the owner. Be also aware that you should take advice with regard your plans to gift a continued amount to your grandchildren. If the total of your gifts exceed $12,000 in any one 12 month period you should declare this.

Original Article published January 2006