Parents looking to give a Christmas gift to their children by way of superannuation contributions must take into account the age of the child in question to avoid any adverse tax consequences, a technical specialist has said.
“If the children are over 18 [the parents need to] make sure that [they] gift the money to the child rather than put the money into the superannuation fund on behalf of the child,” SuperConcepts SMSF technical and private wealth executive manager Graeme Colley advised in a recent podcast.
“The reason for this is [that with] children under 18 you can make a contribution to super and it won’t become a taxable contribution in the fund. But if the child is 18 or older, then that becomes a taxable contribution in the fund and you don’t want that.”
To avoid this situation, Colley suggested the parents give the amount of money of the contribution gift directly to the child and have the child then make the contribution on their own behalf.
He added in these circumstances the child will then have to decide whether to make the contribution concessional or non-concessional.
Regardless of the type of contribution settled upon, he demonstrated how a gift of $1000 made in this way can be beneficial.
“[If the child makes a concessional contribution], they end up [putting] $850 [into the fund] because they’d pay $150 in tax. If that amount was invested in the fund for say at least 45 years, for someone who’s aged 20 that gets them to 65, but it might even be longer than that, and the fund earned an average of around 7 per cent long term … then it probably will grow to just under $18,000,” he said.
“So $1000 today would end up [being] $18,000 by the time the person is 65.”
According to Colley, the strategy would net around $21,000 for the child should a non-concessional contribution be made.