There are three main ways, and the tax depends on who really owns the money, not whose name is on the account. 1. Buy ETFs in your own name and give them to the child later: you pay tax at your rate, which suits a retired grandparent on a low rate. 2. Hold them "in trust" for the child using money that is genuinely theirs: the child pays tax, but at the minors' rate of up to 45% once income passes $1,307 a year. 3. Use an investment bond: earnings are taxed at 30% inside the bond and can be withdrawn tax-free after 10 years. For many families, a low-cost all-in-one ETF in the name of the lowest-taxed adult is the simplest and cheapest option. Grandparents on the Age Pension should keep gifts within $10,000 a year and $30,000 over five years.
Why you can't just buy ETFs in a child's name
Brokers won't open a share trading account for anyone under 18, so a child can't hold ETFs directly. Even if they could, the tax rules are designed to stop adults shifting income to children. Investment income in a child's name is taxed at special minors' rates (the ATO's latest table, for 2025-26, unchanged since 2020-21):
- Up to $416: no tax.
- $417 to $1,307: 66% of the amount over $416.
- Over $1,307: 45% of the whole amount, not just the part above the threshold.
Income from a child's own job, or from an inheritance, is "excepted income" and taxed at normal adult rates. Gifts from parents and grandparents are not excepted. Their earnings face the 45% rate.
Tax a child pays on ETF income from gifted money
In practice, a few thousand dollars in a growth ETF stays under the $416 threshold for years, because growth ETFs like BGBL or IVV pay low distributions. The rate starts to matter once the balance reaches the tens of thousands.
Option 1: buy the ETFs in your own name
The simplest approach. You buy the ETFs, you declare the income and you pay tax at your rate. When the child is older, you can sell and give them the cash, or transfer the ETFs to them.
- Best for: a parent or grandparent on a low tax rate, such as a retiree whose income is mostly tax-free super pension payments.
- Watch out for: transferring ETFs to someone else is a capital gains event for you, even if no money changes hands. You pay tax on any gain at the time of transfer, at market value.
- For couples: buy in the name of whoever is on the lower tax rate.
Option 2: hold the ETFs in trust for the child
Many brokers let you open an account in your name "as trustee for" a child (often shortened to ITF or ATF). Despite the label, the ATO looks at who really owns the money: who provided it, who makes the decisions and who spends the income.
- If it's your money and you use the income yourself, you declare it, whatever the account says.
- If it's genuinely the child's money (birthday gifts, money given to them outright) and the income is kept for them, the child declares it at minors' rates. A tax return is needed if their income is over $416.
- At 18, the ATO says that where the child was the beneficial owner all along, transferring the ETFs into their name is not a capital gains event. They inherit your original cost base.
- Quote a tax file number. Without one, 47% is withheld from the unfranked part of each distribution.
An informal trust works well for modest balances that stay below the $416 to $1,307 range. For large sums it can be the worst of both worlds: 45% tax on income, and a child who gains full control at 18.
Option 3: investment bonds
An investment bond is an insurance-style product that holds investments, often including index funds, and pays tax at 30% inside the bond. If you leave it for 10 years and follow the contribution rule, the whole amount can be withdrawn with no further personal tax.
Share of earnings taxed if you withdraw early
- Best for: parents on a 37% or 45% tax rate, saving for a child's long-term future, with a time frame of 10 years or more.
- The catches: 30% inside the bond is more than a low-income retiree or a child under the threshold would pay. Fees are usually higher than a plain ETF. Franking credits help reduce the internal tax, but are not refunded.
- Control: many bonds let you nominate a vesting age, so ownership passes to the child at, say, 21 or 25 rather than 18.
Whose name is cheapest? A worked example
Here is the tax on $1,000 of unfranked ETF income under each approach. Franked income from Australian share ETFs changes the numbers in favour of low-rate owners, because franking credits can be refunded to people who pay little or no tax.
Tax payable depending on who holds the ETFs
The pattern is clear. A grandparent with a low taxable income is often the cheapest owner of all, and a high-earning parent is usually the dearest. An investment bond sits in the middle, and gets better the higher your own tax rate.
For grandparents: the Centrelink gifting rules
If you receive the Age Pension, or might in future, gifts count against you once they pass the gifting free area: $10,000 a financial year and $30,000 over five financial years. Anything above either limit is treated as a "deprived asset". It still counts under the assets test and is deemed to earn income for five years from the gift.
Two ways around it:
- Keep the ETFs in your own name and earmark them for the grandchild in your will. They still count as your asset for Centrelink, but you keep control and avoid the gifting rules.
- Gift within the limits, for example $10,000 a year, into an account held in trust for the grandchild or into an investment bond.
Which ETFs suit a child's portfolio
A child's time frame is often 15 to 25 years, so most families choose low-cost growth funds that pay modest distributions. That keeps the taxable income low each year.
- One fund, done: DHHF (100% shares, 0.19% a year) or VDHG (about 90% shares, 0.27%). See VDHG vs DHHF vs GHHF.
- Two funds: an Australian fund such as VAS plus a global fund such as BGBL.
- Avoid for children: high-yield income ETFs, which push income over the thresholds faster, and geared or thematic funds.
Our financial goals calculator shows what regular contributions could grow to by the time a child turns 18 or 25.
Common questions
Can a child own ETFs in Australia?
Not directly. Brokers require account holders to be 18 or over. An adult can hold ETFs on the child's behalf, in their own name or as trustee.
How much investment income can a child earn tax-free?
$416 a year, under the ATO's latest minors' rates. Between $417 and $1,307 the excess is taxed at 66%, and above $1,307 the whole amount is taxed at 45%.
Do I pay capital gains tax when I give ETFs to my child at 18?
If the ETFs were always the child's (held in trust with their money), the ATO says there is no capital gain on transfer. If they were yours, transferring them is a disposal and you pay tax on any gain.
Is an investment bond better than ETFs for children?
It can be for parents on high tax rates with a 10-year horizon. For a low-income grandparent, ETFs in their own name usually pay less tax and lower fees.
How much can grandparents gift without affecting the Age Pension?
$10,000 a financial year and $30,000 over five financial years. Amounts above either limit are counted as assets and deemed to earn income for five years.
General information only, not tax or personal advice. Tax rules depend on your circumstances: speak to a tax agent or financial adviser before setting up a structure for a child. Sources: ATO (tax rates if you're under 18; children's share investments), Canstar investment bonds guide (May 2026), SuperGuide Age Pension gifting rules (October 2026).
Joshua Stega is a financial adviser with 20 years' experience and the founder of ETF Adviser. He built ReviewETF to make every Australian ETF easy to find and compare.
General information only. It does not take into account your objectives, financial situation or needs. Consider the PDS and TMD before investing. Past performance is not a reliable indicator of future performance. Data as at 30 September 2026.