Understanding Child Investment Bonds

A simple way to invest for a child’s future

When parents, grandparents or loved ones want to invest for a child, the goal is usually simple: grow money over time in a tax‑effective, flexible and low‑maintenance way. One option that is often overlooked—but can be very effective—is a Child Investment Bond.

This article explains what a Child Investment Bond is, how it works, its unique tax treatment, and the types of families it may suit.

What Is a Child Investment Bond?

A Child Investment Bond (also known as an investment bond) is a long‑term investment structure designed to help build wealth over time, often for children.

Although commonly used for children, the bond itself is owned by an adult investor (such as a parent or grandparent), who can nominate a child as the beneficiary. The investment grows inside the bond and can later be transferred to the child—typically when they reach adulthood or at a time chosen by the owner, commonly 21.

Inside the bond, you choose how your money is invested in professionally managed investment options, such as:

• Australian shares

• International shares

• Balanced or diversified portfolios

• Conservative or growth strategies

Key Features of a Child Investment Bond

1. Long-Term Investment Structure

Child Investment Bonds are designed to be held for the long term, often 10 years or more. This makes them well suited for goals such as:

• Education costs

• First home savings

• Helping a child start adult life financially

2. Flexible Contributions

• You can start with a small initial investment of as low as $1,000

• Additional contributions can usually be made each year

• Many bonds allow contributions of up to 125% of the previous year’s amount without resetting the 10 year period (more on this later)

This flexibility makes bonds suitable for irregular contributions, gifts, or bonus payments.

3. Professional Investment Management

Your money is invested in managed funds run by professional fund managers. You don’t need to:

• Select individual shares

• Rebalance portfolios

• Manage tax reporting inside the bond

The Unique Tax Position (One of the Biggest Benefits)

The tax treatment of Child Investment Bonds is what makes them stand out.

Tax Paid Internally

• Earnings inside the bond are taxed within the bond itself, generally at a maximum rate of 30%. This is lower than the most typical tax threshold for working individuals of 32% (including Medicare Levy).

• You do not declare the bond’s earnings in your personal tax return while it is invested

This can be particularly beneficial for parents or grandparents on higher marginal tax rates.

The 10‑Year Rule

If the bond is held for 10 years or more:

• All withdrawals are completely tax‑free

• No personal tax, no Medicare levy, and no capital gains tax

Withdrawals made before 10 years may still receive concessional tax treatment, depending on when they are taken.

Capital Gains Tax (CGT) Implications

One of the often‑overlooked advantages of a Child Investment Bond is the way capital gains tax (CGT) is handled. When investments inside the bond are bought and sold, any capital gains are taxed within the bond itself, rather than being attributed to you personally. This means there is no separate CGT event in your personal tax return when the underlying investments are switched or rebalanced.

Importantly, when the bond is transferred to the child or withdrawn after the 10‑year period, no additional CGT is payable by either the investor or the child, provided the 10‑year rule has been met. This allows the investment to be managed and eventually passed on without triggering personal CGT outcomes—something that does not occur when investing directly in shares or managed funds outside a bond structure.

No Penalty Child Tax Rates

Normally, children’s investment income is taxed at very high rates to discourage income splitting. Child Investment Bonds avoid these punitive child tax rates entirely, as the bond—not the child—is taxed.

Control and Simplicity

You Stay in Control

• The adult investor remains the legal owner

• You decide when and how the money is used

• Funds can be transferred to the child at a chosen age or milestone

This can provide peace of mind if you want to ensure the money is used responsibly.

Minimal Administration

• No annual tax reporting for investment earnings

• No need for separate child tax returns

• Simple statements and reporting

Who Might a Child Investment Bond Be Suitable For?

Child Investment Bonds are not for everyone, but they may be suitable for:

Parents

• Saving for education, housing, or future support

• Wanting a tax‑effective alternative to savings accounts or investments in the child’s name

Grandparents

• Gifting money in a controlled, long‑term structure

• Avoiding the complexity of family trusts

• Managing tax efficiently while retaining control

Families on Average to Higher Incomes

• Those paying marginal tax rates above 30%

• Seeking long‑term, tax‑effective growth outside superannuation

People Wanting Simplicity

• Investors who want a “set and forget” structure

• Those who prefer professional management and minimal administration

A Child Investment Bond can be a powerful, simple and tax‑effective way to invest for a child’s future—particularly when the investment horizon is long and tax efficiency matters.

Like all financial products, suitability depends on your personal circumstances, goals, and time frame. Used appropriately, a Child Investment Bond can play an important role in building long‑term financial security for the next generation.

If you’re considering investing for a child—whether for education, a first home, or a financial head start—now is a great time to explore your options.

Speak with a financial adviser through the link here to understand whether a Child Investment Bond fits into your broader financial strategy and how it compares with alternative structures.

General Advice Warning

This information has been prepared without taking into account your objectives, financial situation or needs. It is general advice only. Before acting on this information, you should consider the appropriateness of the information in light of your personal circumstances and seek professional financial advice where necessary.