Q: My wife and I have recently established an SMSF with a corporate trustee and we want our 17-year old son to join the fund. Can he join?
A: We often get asked by our clients who are contemplating establishing an SMSF whether they can admit a child member to their fund. While it is not uncommon to admit a child member to join your SMSF there are a number of issues to consider first before going down this avenue.
Issue 1: Does the trust deed permit a child member to be admitted?
You will need to consider whether the current rules of your fund permit a child member to be admitted to the fund.
If your trust deed expressly prohibited the admission of a child member to the fund then the rules of the fund would need to be amended to permit the admission of your son as a child member.
If the rules are silent on the issue, then it might be appropriate to amend them to specifically permit the admission of a child member in order to put the issue beyond doubt.
Issue 2: Does the current investment strategy of the Fund need to be revised?
Another important aspect to consider is whether the current investment strategy of the fund will need to be revised once the child member is admitted to the fund. A child member’s investment strategies would be materially different from those of his or her parents.
Issue 3: Who will act as the child’s representative?
As your son is under 18, he is legally unable to act as a director of the corporate trustee. An authorised signatory such as a parent, guardian or legal personal representative will be required to execute the member admission and appointment of a director documents to act as a member and director on the child member’s behalf.
You may decide that your wife will be a representative director on your son’s behalf until he turns 18 years old. She will need to be provided with a copy of the current General Product Disclosure Statement of the Fund. Barbara will also need to sign the application for membership documents on behalf of your son and provide his tax file number to the Australian Taxation Office if required.
As your wife has already been appointed a director of the corporate trustee in her own right she is not required to be appointed as a director again. However, it is important to note here that if she was not already appointed as a director then her appointment as a director must occur before or at the same time as the admission of your son as a member of the fund. If the appointment is made after the admission of your son, then the fund may not satisfy the definition of “self-managed superannuation fund”.
It is also important to notify the ATO of the change in membership of the dund. This can be done by using ATO Form 3036, AUSkey or ATO Digital Certificate.
Issue 4: Child contributions
It is also worth mentioning that contributions made for a child under 18 years old count towards their non-concessional contributions cap. This means that if your wife made a contribution for your son then the contribution would count towards his non-concessional contribution cap and would not count towards Barbara’s contribution cap.
Issue 5: Attaining 18 years
Once your son turns 18 years old he is legally able to act as a director of a corporate trustee in his own right and your wife will no longer be required to do so.
Section 17(3) of the Superannuation Industry (Supervision) Act provides that a parent or guardian of an underage member may act as trustee of the fund in place of the member while the member is aged under 18. An underage member must be appointed as a director of the corporate trustee within six months of their 18th birthday to ensure the trustee structure meets the requirements of the SIS Act and for the fund to meet the definition of a self-managed superannuation fund.
Alternately, your son could appoint your wife as his superannuation attorney. In this case, she will continue to act as his representative director and he need not be appointed as a director. He would need to execute an enduring power of attorney to adopt this course and it would need to be restricted to superannuation matters.
If your son didn’t want to be involved in the activities of the corporate trustee he could be appointed as a director and then appoint your wife as his alternate director. She could then exercise his powers as a director until he decided to take up his role himself.
Elizabeth Wang is a solicitor at Townsends Business & Corporate Lawyers