Are you a parent or grandparent wondering whether you can contribute to your child or grandchild’s superannuation account to give them a financial head start? The answer is it is possible, however, there are a few issues to consider before you go down this path.

Making contributions to a child’s account

Superannuation law categorises contributions as either employer contributions or member contributions and provides eligibility rules for superannuation funds to accept these contributions.

Member contributions are all contributions by, or on behalf of, the member to the fund that are not employer contributions. Member contributions are split into those made by the member, and those made by someone other than the member for the purposes of contribution eligibility.

So, if you’re making a contribution on behalf of your child or grandchild who is under age 18 (ie, a child contribution), this type of contribution is treated as a non-concessional contribution of the child.

Tip – if the child does not have a superannuation account open, a parent or a legal guardian can open up an account for the child as minors are unable to legally sign paperwork. It is also worth noting that a child will need a tax file number (TFN) as part of the account opening process. Without a TFN, a superannuation fund will not be able to accept any member contributions.

No tax deduction available for child contributions

Although you can contribute to a child’s superannuation account, you won’t be entitled to receive a personal tax deduction or offset from the contribution. This is because child contributions are non-concessional contributions, which are often referred to as after-tax contributions because they are made from after-tax money.

The only exception where you may be entitled to a personal tax deduction is where the child is employed in a family-owned business, and you are the child’s employer.

Note – child contributions do not include contributions you make as a child’s employer. These contributions are reported as employer contributions and count towards the child’s concessional contributions cap instead.

Beware of the non-concessional contribution cap

Once you make a contribution for a minor child, the contribution will count towards the child’s non-concessional contributions cap. The non-concessional contribution cap limits the amount a person is able to contribute into superannuation in any single financial year, where the beginning of a financial year is 1 July and the end is 30 June.

The standard non-concessional contribution cap for the 2022/23 financial year is $110,000 per person. The cap will also remain the same in 2023/24.

Money will be preserved until the child’s retirement

There’s no denying that contributions made today will allow children to be better off in retirement due to the power of compounding interest. However, children generally won’t be able to access their superannuation until they reach age 65 or when they retire (usually after 60). Given retirement is many years away and children may require funds much earlier in life, say to pay for a car, or for education or a home deposit, etc, there may be other options besides superannuation that may be ideal for giving children a financial head start in life.

Need more information?

If you’re interested in helping out your children or grandchildren but are unsure of how to best provide for them, contact us today to discuss the options that may be available to you and your family.