Custodial Accounts Australia 2025: Guide for Parents & Guardians

Custodial accounts, long established in other parts of the world, are now finding their stride in Australia. As more parents and guardians look for effective ways to set up their children for financial success, these accounts offer a flexible, tax-effective solution—especially with the latest regulatory tweaks for 2025. Whether you’re looking to invest for your child’s education, first car, or simply teach them about money, understanding how custodial accounts work is crucial for making smart decisions.

What is a Custodial Account and How Does it Work?

A custodial account is an investment or savings account established by an adult (the custodian) on behalf of a minor. The custodian manages the assets until the child reaches a legal age—typically 18 or 21—at which point full control is transferred to the young adult. In Australia, these are sometimes referred to as ‘minor accounts’ or ‘in-trust accounts,’ and can be opened through banks, credit unions, or investment platforms.

• Ownership: The assets legally belong to the child, but the adult controls decisions until the handover age.

• Investment Options: Savings accounts, term deposits, managed funds, shares, and ETFs are common choices.

• Purpose: Funds can be earmarked for education, a first home, or simply to build a nest egg.

The appeal? Custodial accounts allow parents and guardians to start investing early, harnessing the power of compound interest over many years.

2025 Policy Updates and Tax Considerations

2025 has brought notable changes to the custodial account landscape in Australia. The ATO has clarified reporting rules, and some banks have updated their product terms in response to regulatory guidance.

• Taxation: Income generated in custodial accounts is generally taxed at the child’s marginal rate, but high levels of passive income (over $416 per year) may attract penalty rates under the ‘Division 6AA’ rules. In 2025, there’s continued debate about easing these punitive rates, but for now, families should remain vigilant.

• Reporting Requirements: Parents must provide their child’s TFN when opening a custodial account. The ATO is targeting unreported child investment income with new data-matching initiatives in 2025, so compliance is key.

• Product Changes: Some banks, including several major Australian institutions, have introduced new minor account products with built-in spending controls and educational tools, recognising the growing demand from families.

It’s important for families to track annual earnings and be aware of the handover process when the child reaches maturity. Planning ahead can help avoid tax surprises and make the transition smooth.

Setting Up a Custodial Account: Tips for 2025

Opening a custodial account is straightforward, but maximising its benefits takes planning. Here’s a practical guide for 2025:

• Choose the Right Institution: Compare banks, credit unions, and investment platforms. Look for low fees, flexible investment options, and robust digital access.

• Understand the Rules: Confirm the minimum age for account control transfer, documentation required, and any restrictions on withdrawals before the child reaches legal age.

• Consider Investment Mix: For long-term goals (10+ years), consider growth assets like ETFs or managed funds. For shorter-term needs, a high-interest savings account may suffice.

• Monitor Contributions: Regular deposits, even small ones, add up over time. Some platforms now allow automatic round-ups or family gifting features to boost balances.

• Teach Financial Literacy: Use the account as a springboard for money conversations. Many 2025 account products offer built-in educational tools and progress tracking for kids and teens.

Real-world example: The Smith family opened a custodial account for their daughter in 2015, investing $100 per month in a diversified ETF. By 2025, thanks to steady contributions and compounding, the balance has grown substantially—giving their daughter a head start for university or her first car.

The Bottom Line: Are Custodial Accounts Right for Your Family?

Custodial accounts are a powerful tool for Australian families looking to build generational wealth and foster financial literacy. With 2025’s renewed policy focus and product innovation, there’s never been a better time to consider setting one up. Just remember to stay on top of tax rules, choose investments that match your goals, and use the account as a springboard for teaching kids about smart money management.