Super changes encourage adding your children to your SMSF
From 1 July 2022, employers will need to pay super for their employees who are under 18 years old if they work more than 30 hours in a week.
This is the result of the $450-per-month minimum threshold for super guarantee payments being removed so that employees who are under 18 will be eligible for super if they work more than 30 hours in a week, regardless of how much they’re paid.
These changes again raise the issue of having your children as members of your self managed super fund (SMSF).
Let’s say you have encouraged your young teenager to get a part time job. They might be cooking burgers at McDonalds, picking up glasses and cups at the local café or might even be working in the family’s small business. You might believe that this teenager doesn’t meet the 30 hour per week test. But is that always correct? Do they work more in school holidays so that they actually do meet the test every so often?
The ATO is clear that super is payable in respect of any week where the 30-hour test is met.
So now they’ll start to receive annoyingly small amounts of superannuation. The question then is: who should your child’s super be paid to? It seems that it could be convenient, cost-effective and even parentally responsible to have that super paid into your existing self managed super fund.
Here are some thoughts on the common FAQ’s around this subject.
Q: Why would I want to make my child a member of my SMSF? Predominantly to save the costs eating away at your child’s small super balance in a public offer fund.
A: In your SMSF the costs can be controlled more carefully, will be shared with the other fund members and can be proportional to the size of their account.
Q: My child is a minor so how can they join a super fund?
A: You as their parent and guardian join them up to the fund, whether that is a public offer fund or an SMSF.
Q: Will they have to be a director of our corporate trustee?
A: Not until they turn 18. Until then their parent will represent them on the board of the corporate trustee.
Q: Does my super fund permit child members?
A: You’ll need to check the trust deed and governing rules of the fund. If your SMSF’s rules don’t permit child members, arrange with your accountant or fund administrator to have the rules changed.
Q: Will the Fund need a new investment strategy?
A: Yes as clearly the investment needs of a young person are very different to those that might apply to their parents. Such a strategy should not be difficult or expensive to establish.
Q: What happens when they turn 18?
A: Apart from being able to vote at Federal elections, they become grown-ups from a legal viewpoint with all the legal rights and obligations of an adult. That means they will then have the choice as to where to put their super and can choose to stay in the SMSF or rollover their member benefit to another fund – public offer, industry or another SMSF. If they choose to remain in your SMSF they will have to become a trustee or a director of the corporate trustee and can no longer rely on you to represent them.
Q: How can the parents protect their control of the fund once the child reachs 18?
A: There is a need to safeguard the parents’ interests in the fund against trustee actions brought on by the kids. This is most often achieved through the rules of the fund permitting members to vote based on the size of their member balance in the fund. As the parents will likely have much more in the fund than the children the size of the parent’s voting bloc ensures their control. Don’t however forget the voting on the board of the corporate trustee and at a shareholders’ meeting of the corporate trustee. The constitution of the company should be amended to ensure the parents’ votes at both types of meetings will ensure control is not lost.
For further information, please contact Townsends Business & Corporate Lawyers on 02 8296 6222 or email email@example.com.