A child with their own investment account and no other income can pay as little as 10.5% tax on it - lower than almost anyone reading this pays on their own money. Put the same money in a family trust instead, meaning to do the responsible thing, and it can get taxed at 39%.
New Zealand doesn't run an "unearned income of minors" regime the way Australia does, taxing a child's investment income at punitive rates specifically to stop parents shifting money into their kids' names. There's no equivalent broad rule here for an outright gift. Combined with gift duty being abolished back in 2011, that makes investing directly in a child's own name one of the most tax-efficient things a New Zealand family can do - which is exactly why it matters that the two most common ways parents actually go about this land on opposite ends of the tax outcome.
Money invested directly in a child's own name, through their own IRD number, is taxed as the child's own income - not attributed back to whichever parent provided the money. A child with little or no other income typically qualifies for the lowest Prescribed Investor Rate, 10.5%, on PIE fund income held this way. Compare that to a parent on the 30%, 33% or 39% bracket investing the same amount in their own name, and the gap is enormous - not because of some special children's tax break, but simply because the child is being taxed as the low-income individual they actually are.
Platforms like Sharesies Kids and InvestNow's children's accounts are built around exactly this: the child is the account holder, their own IRD number is required to open it, and any PIE income gets taxed at their own PIR rather than the parent's. It's a completely different structure to a trust, and it's the one most likely to actually work in the child's favour.
The instinct to set up a family trust "for the kids" is common, and for property or larger estate planning it can make sense. But there's a specific rule that catches parents by surprise the moment a trust starts distributing investment income to children under 16.
If a trust distributes income to a beneficiary under 16, that income is taxed as trustee income at 39% - not at the child's own rate - regardless of how little other income the child has. The exceptions are narrow: distributions of $1,000 or less to that beneficiary in the year, income from a disabled beneficiary trust, a deceased estate, or a Māori authority. Outside those, a family trust quietly turns a low-tax opportunity into the highest tax rate in the country.
The rule exists to stop income splitting - without it, a family on a high marginal rate could route investment income through a trust to a child and have it taxed at close to nothing. But it means the "safe, responsible" instinct to hold money for children inside the family trust can produce the exact opposite of what most parents assume they're getting, unless the amounts involved stay under the $1,000-a-year threshold.
One email a week. Straight writing on investing from New Zealand.
Outside of a trust, there are really two practical routes for money you want to build up for a child, and they trade off against each other in a way worth being deliberate about.
A managed fund or ETF account in the child's own name - Sharesies Kids or InvestNow's children's account are the two most established versions - is taxed at the child's own PIR and stays liquid. The tradeoff is legal, not tax-related: it's the child's own asset. Whoever holds it as custodian loses control the moment the child turns 18, at whatever balance it happens to be.
There's a direct-shares version of the same idea too - Hatch's Kids Accounts, which hold US shares in the child's name instead of a PIE fund. The legal shape is the same: the child's own asset, held as an irrevocable gift, with the custodian's control ending at an agreed age between 18 and 25. The tax treatment isn't the same, though, which matters enough to spell out rather than assume.
Taxed at the child's own Prescribed Investor Rate: 10.5%, 17.5% or 28%. Capped at 28% no matter how large the account grows.
Taxed at the child's own marginal income tax rate on dividends, with US withholding tax already deducted at source. Once the account passes $50,000 NZD in foreign shares, the FIF rules can apply - each child gets their own $50k threshold, since it's held in their own name.
KiwiSaver can be opened for a child at any age, and the money compounds inside the same tax-efficient PIE structure as an adult's account. The tradeoff here is access, not tax: nothing comes out until 65, other than the existing first-home withdrawal provisions, and - until the child turns 16 - there's no government contribution and no employer contribution sitting on top of what you put in, because neither applies below that age. For a young child, KiwiSaver is a long, locked compounding vehicle with no boosts yet attached. For a 16 or 17-year-old with even a part-time job, that changes completely.
Two separate KiwiSaver eligibility changes lowered the qualifying age from 18 to 16: the government contribution (from 1 July 2025) and compulsory employer contributions (from 1 April 2026, confirmed directly on IRD's own site). A 16 or 17-year-old now in paid work and contributing to KiwiSaver gets the same government top-up and employer-matched contributions an adult member does - up to $260.72 a year from the government, provided they've put in at least $1,042.86 of their own money between 1 July and 30 June.
That's a materially different proposition to a savings account for a much younger child. If there's a teenager in the household with a part-time job who isn't yet in KiwiSaver, that's the more immediate, higher-leverage thing to check - not because a locked, 65-year account suits everyone, but because turning down free money from an employer and the government is a different kind of decision to simply not having got around to opening one yet.
A rough sense of scale: $20 a week invested from birth, growing at a steady 6% average annual return, comes to roughly $10,700 by age 10 and around $30,700 by 18 - illustrative only, since real returns move around year to year and this ignores fees and tax on the way through. The point isn't the exact number. It's that the account structure the money sits in matters more, over that time horizon, than most parents realise when they're choosing where to put it.
For what it's worth, this is the approach I've taken with my own kids: open-ended unit trust accounts in their own names, with a provider that charges the same fee on those accounts as it does on its KiwiSaver fund, so there's no penalty for choosing the liquid option over the locked one. I've deliberately left KiwiSaver out of the picture for now. My view is that's a decision they should make themselves, once they're old enough to be contributing through an employer and getting the government and employer top-ups that come with it, rather than one I make for them years in advance.
One email a week. Straight writing on investing from New Zealand.
Subscribe for free