Tim Miller, head of technical and education for Smarter SMSF, said certain rules around the five-year amnesty were introduced with the new legislation as well as a change to the allocation of monies from a reserve and how they are treated.
“Something that needs clarity for people is to understand that we’re not exclusively talking about reserves created from these legacy pensions either,” he said in the latest technical update.
“We’re talking about reserves that may have been introduced for things like anti-detriment for self-insurance, for investments, all sorts of reasons that people might have introduced them over the preceding decades within an SMSF.”
Miller said the new legislation meant there is potentially an opportunity to look at making larger allocations through these.
“Instead of having allocations from reserves potentially counted against an individual’s concessional contribution cap, the amounts will be counted towards a member’s non-concessional contribution cap,” he said.
“In some cases, that will be problematic, but in a lot of instances we’re talking about not only four times the limit from a concessional cap point of view, but then an additional three times that amount if you’re looking at the bring-forward provisions under the non-concessional contribution cap. That means a greater capacity to allocate more money to reduce the size of these reserves in a shorter time frame.”
Aaron Dunn, CEO of Smarter SMSF, said some allocations will be looked at in the context of pension reserves that support the payment of the pension for mortality and investment risk as well as other reserves within SMSFs.
Miller continued that under the draft regulations, a fund member who is currently paying a legacy pension will have the capacity to allocate the total amount of that reserve, which is inclusive of annual liability.
“However, any excess amount sitting with reserves based on the earnings over the years will be able to be allocated to the member, and potentially to another account-based pension, to an accumulation, or taken out of superannuation,” he said.
“In that instance, it won’t count towards any contribution caps, but if you go beyond that, there are overriding rules that talk about allocations from reserves, and there are a few boxes that have to be ticked to not have it counted towards a cap.”
One of those is that the allocation is on a fair and reasonable basis to all members of the fund.
“For SMSFs, we stream all members of the fund and the amount doesn’t represent an amount that is greater than five per cent of the members’ balances, so it has restricted those allocations to relatively small amounts,” Miller said.
“Given that if you exceeded that five per cent or if it wasn’t unfair and reasonable, then it would be counted towards the concessional cap, which, until this year, is $27,500, maybe more, if you had carry forward or unused concessional amounts. Those non-fair and reasonable allocations from any form of reserves will be counted towards a non-concessional cap.”
He concluded that anyone with less than $1.9 million from a general transfer balance cap point of view would be able to make quite significant allocations and the access or the counting as a cap would not be problematic for them.
