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[FAQ] Tax-free investment made on behalf of a minor child
- 02 July 2021
- Individuals Tax
- The Tax Faculty Tax Specialist
This article is based on tax law for the year ending 28 February 2021.
Background
A taxpayer opened a tax-free investment for his 2-year old daughter in her name.
Is this declared in the taxpayer’s tax return?
Answer
Income Tax Act
The legislation doesn’t deal with this specifically. It appears that it is accepted in the market that these investments can in fact be made by minor children. We don’t comment on how this is to be made but expect that it may involve a donation by the parent.
Section 7(3) of the Income Tax Act deals with the possible tax avoidance by the parent, but it is not relevant to your request. If the tax-free investment was made in the name of the parent, it will be reflected on the ITR12 where required.
You start by answering the following question: “Were there any transactions (contributions, transfers, withdrawals, income received/accrued) on any tax-free investments held by you during this year of assessment?” That will then open up the containers to provide the required detail.
If it is in the name of the child, it will be the same, but if the child doesn’t have to file a return, it is not necessary to do so – in other words, to provide the detail of the tax-free investment made by the child. The parent will then not reflect to detail in his or her return.
Webinar Commentary
For further commentary refer to the following webinar: 360 Degree View of Individual Taxpayers here.