Speaking to SMSF Adviser, SuperConcepts general manager of technical services & education Peter Burgess said the reserves guidance provides a useful explanation of the types of reserving strategies that are likely to catch the eye of the ATO, and it does appear to take a very hard line on the allocation of reserves.
For example, the ATO bulletin states at paragraph 52 that an allocation cannot be made from the reserve to an existing account-based pension, he noted.
“Presumably this means where an SMSF only has account-based pensions and has a legacy reserve, say because the fund had an anti-detriment reserve, or reserves left over from an old defined benefit pension, the reserve can only be allocated to an accumulation account,” he said.
“As a result, the proceeds of the reserve will need to be retained in a taxed environment despite the SIS regulations allowing such an allocation to be made to an existing pension account.”
Rather than prohibiting such allocations, Mr Burgess said an alternative could be to amend the law so that such allocations would count as a credit to the member’s transfer balance account.
The ‘Regulator Bulletin’ is nothing of the sort. It would be better called an ATO Tax Regulator’s Bulletin as that is all it is concerned with. There are only very loose, potential super law issues.
It is of concern that the ATO in this Bulletin states that it “is concerned” that the use of reserve strategies could be used to get more into the retirement phase by a member and hence increase the ECPI%. Unless it is thinking about lower balance SMSFs, the ECPI% would be the same as, the balance of the Reserve is an accumulation phase interest.
And with all the transitional arrangements associated with Super17, why weren’t funds that had Anti-Detriment Reserves given the opportunity to allocate out given that they are nolonger able to be utilised as a result of Super17?
All other impacts were accommodated in some form.
Where’s the problem? Simply allocate to the accumulation phase then commence a new pension… Tax free earnings in pension phase. Unless of course the client is over their Transfer Balance Cap…
So why is the ATO making the law? That is not their job… .they state that they implement the law and not interpret or make it. This seems like they are not following their own guidance. The law, after all, is the The Law. I agree with the last comment by Mr Burgess