Recently, we’ve had a couple of enquiries regarding grandparents who want to establish a superannuation balance for a grandchild in their SMSF.
Depending on the age of the grandchild, the trustee – member nexus is treated differently. If the grandchild is over 18, they must become a trustee, or director of the corporate trustee. If they are under 18, they need to be represented by a parent or guardian who will act in their stead until they turn 18. In either case the issue of control needs to be carefully considered. Does the SMSF’s voting power rely on a simple majority or on member balances? Either the deed or constitution of the corporate trustee, or both, need to be considered. Perhaps it would be advisable for the grandparents to utilise a retail fund and avoid these issues? In any case, what can be contributed?
An individual under the age of 18 can make non-concessional contributions and even use the 3 year bring forward amount. Concessional contributions can only be made if they are working or have turned 18 by the 30th June. Interestingly, once concessional contributions can be made, the full 5 year unused concessional contribution cap can be used (assuming they have not tripped the $500k ineligibility threshold).
Note that contributions made by a grandparent for their grandchild will be regarded as concessional. To avoid this, any such amount should firstly be gifted to the grandchild who will then make the contribution. Payments from a company or trust will be similarly treated.
