Bringing a child into the world and raising them to be a productive and functional member of society is no mean feat. Along with the myriad new responsibilities on your plate, there's also the matter of tightening up your budget and taking out trauma insurance to protect your family's income in case the worst happens.
In the midst of all this, it can be easy to forget the issue of taxes. But with your changed family situation, there are a number of important considerations you'll have to keep in mind when the end of the tax year comes nipping at your heels.
Setting up a savings account for your child
One of the most prudent financial decisions you can make as a new parent is to create a plan for long-term wealth creation for your child. A simple way to do this is by setting up a savings account for them early, and periodically squirrelling money away into it. Over time, this can build up into a substantial sum.
But are you responsible for declaring the interest earned by this account?
It depends on whether you, as the parent, provided the money and spend it as if it's your own. If so, the interest earned will be included in your personal tax return - regardless of whether you're spending the money on the child.
However, if the fund consists of money from presents, part-time jobs or pocket money and is solely used by the child, then the interest is counted as the child's.
Some of the tax planning will only apply after you are deceased. Either your estate or your child may end up having to pay some tax on the inheritance.
For example, a capital gains tax may apply to some of a deceased estate's assets, such as a home. It should only apply when it's subsequently sold, not when your child inherits it. However, if the home passes to a charity or a foreign resident, the asset will be taxed. This is something both you and your child should keep in mind when they're old enough.