nonrecourse said:
A child can be a member of a fund with the a corporate Trustee if another member of the fund is also a director in the corporate Trustee and acts as the guardian until the child reaches the age of 18. I know I did it with my son. I passed minutes that documented this but our stupid accountant and auditor did not flag this to the ATO which resulted in us having a desk audit.
When I supplied the documentation it passed.
The problem about having minor children as members of an SMSF with a corporate trustee has only recently been recognised by the ATO. It was raised in the National Tax Liaison Group (NTLG) Superannuation Technical Sub-group (STS) meeting of September 2010 (item 6.8). The sub-group is made up of ATO officers and superannuation tax professionals and regularly meets to discuss superannuation tax matters.
In the meeting, the ATO stated "we do not consider that it is within the scope of (the legislation) to regard a fund as an SMSF if it has members who are under 18 years, a corporate trustee and the parent/guardian is not a legal personal representative". It stated that it was aware of less than 50 funds that may be in the position of effectively being treated as SMSFs even though they have members under 18 years of age and a corporate trustee in place and that it intended to resolve the issues with these funds "within the next six to nine months".
In other words, these funds may not have been operating lawfully in the past and the ATO has only just realised this. From the notes of the meeting you get the impression that the ATO would be lenient on these funds and offer them some way to make amends.
The problem arises because of a combination of these four things:-
(a) The Corporations Act does not permit a minor child to be a director of the corporate trustee.
(b) The Superannuation Industry (Supervision) Act ("the SIS Act") requires that each member is a director of the corporate trustee.
(c) The SIS Act provides some exceptions to the requirement at (b). In particular it provides that a parent or guardian can be a trustee instead of a minor child. The word "trustee" here clearly refers to individual trustees and not to a director of a corporate trustee. So this does not work in the case of a corporate trustee.
(d) The SIS Act also permits a "legal personal representative" to be a director of the corporate trustee instead of a minor child. However legal personal representative is defined [in section 10(2)] as meaning:-
the executor of the will or administrator of the estate of a deceased person, the trustee of the estate of a person under a legal disability or a person who holds an enduring power of attorney granted by a person.
Since a child cannot grant a valid power of attorney and (contrary to the belief of some) a parent is not automatically the trustee of the child's estate, this does not work either. And here it is clear that the trustee would need to be a trustee of the whole of the child's estate, and not just of that part of it that happens to be within the fund. Hence it is not possible to get round the rules by the parent declaring a trust in respect of monies contributed to the fund for the child.
These problems don't arise where the SMSF has individual trustees, because then the child can be represented on the fund by one or both parents under (c) above (exactly how this is done will depend on the terms of the trust deed).
