Looking for a unique Christmas gift for your children/grandchildren this holiday season? A contribution to their superannuation could be a long-term investment that keeps on giving.
While it may not be the most conventional of Christmas gifts, contributing to your children’s or grandchildren’s superannuation fund could provide them with an ongoing benefit as they grow older.
However, there are strict conditions in which you are allowed to contribute to another person’s superannuation fund*.
- If they are your employees (employer contributions).
- If they are your spouse
- If they are children under 18.
Children under 18 years of age can have contributions made on their behalf by you. You may wish to do so to provide them with part of their inheritance before you die or simply as a financial gift, both of which can continue to grow through the power of compound interest.
The power of long-term compound interest can have a potentially life-changing impact on their finances. As earners below the low-income threshold (earning below $42,016), they will also be eligible for the government co- contribution of $500.
This means that if you put $1,000 into their fund when they were 15, they would also receive the government co- contribution of $500, meaning they would have $1,500 in total.
If this was left in their account and was subjected to the interest rate of 7% for 45 years (until they were 60), they could be up to $31,503 better off in their super fund. This is on top of any other contributions they may have received to their funds, such as an employer or spousal contributions throughout their lifetime.
If you continue to gift contributions on top of that initial amount in the first year, the power of compound interest could multiply that amount even more.
However, if you wish to provide your children/grandchildren older than 18 with a contribution, they must contribute to the fund themselves. This means they need to be deemed to have contributed themselves, even if they received the money from you. In these circumstances, the child must decide whether to make the contribution concessional or non-concessional.
A tax deduction on this kind of contribution can only be claimed if the child/grandchild contributes to the fund themselves, not by you (despite being the one to give the gift initially).
Want to know more about superannuation contributions and gifting? Consult with a professional adviser on superannuation for more information.