The use of reserves by SMSFs (ATO Bulletin)

Legal Database

 

Also see:

ATO guidance on reserves a ‘hard line’ position, says expert - SMSFAdviser Magazine

and the comments

 

Posting links is not a great way to post on this forum.

One specific adviser who is a Smsf commentor and created his own education academy and self education seminar group has long advicated and educated smsf professionals about using reserves founded on some vague concepts. The practice has been stopped for smsfs but those smsfs need to fix the issue and clear the reserves. But thag isnt easy. Many disregard the specific laws and im with the ATO and have been for years. Its a scheme. And a concern . Breach of trust law too.

Reserving is a issue for APRA funds.

 

The SMSF adviser issue with reserves allocations is easily addressed. Pension rules governed by SIS regulations prevent a pension account being added to other than on establishment. That cant & wont change. Reserves can only ever credit an accumulation account unless a new pension is commenced solely with reserve funds. And that would be quite rare. (never ?). Typically its far easier and cleaner to have a single pension account.

There can be a trap to that. Some super pensions are grandfathered under old Centrelink rules which exclude the pension account value from assets tests and ending that pension shouldnt occur as it means the pension then falls under revised asset rules. For people who wont get a Centrelink pension then there is no concern.

To bypass the rule about crediting a pension the existing pension can be commuted to accumulation, added to the reserve credit (which may or may not count to caps) then a new pension commenced. All within the same day. So no effect on accumulation and taxing and no need for actuarial certificates etc. And the net impact on the $1.6m transfer balance cap would only be the value of the reserve allocation.

 

The only thing of interest to me in all this which is not technically a Reserve is being able to bring forward next FY’s concessional contribution. The ATO’s view on this along with standardised form released in 2013 appears to still stand. Of course having a deed that allows this along with preparation of correct documentation is as always important.

 

A contributions reserve? Only for contributions in June I thought?

 

Yes, but as I said earlier not technically a Reserve.