If you look at the form to include investment income in the parent’s return you will see that only interest, dividends and capital distributions are mentioned. Capital distributions are typically paid from a fund or stock holding as opposed to capital gains which are from a sale of equities. So capital gains from a sale of equities has to be reported on the child’s return and Kiddie tax will apply.
https://www.irs.gov/pub/irs-pdf/f8814.pdf
