As predicted in SMSF Adviser late last year, the ATO has now released a form, titled Request to adjust concessional contributions, which notifies the tax office that a member of an SMSF has made concessional contributions in one financial year (year one) but their SMSF did not allocate them to the member until the next financial year (year two).
Most SMSFs use provisions in their trust deeds in relation to contribution reserves to enable this contribution reserving strategy, DBA Lawyers director Daniel Butler told SMSF Adviser.
The strategy allows contributions to be recognised for income tax deductibility in year one but not counted towards the concessional contributions cap until year two.
The ATO acknowledged that the SMSF annual return does not otherwise make provision for it, but only allows for the correct reporting of contributions that are both allocated to SMSF members and contributed in the same financial year.
Prior to the release of this new form, to use the contribution reserving strategy taxpayers would have to go through an objection process.
This is in spite of the ATO confirming that this is a valid strategy under the tax and super laws, according to the view outlined in TD 2013/22, which is a binding ruling, on the assumption that all the associated legal requirements are met.
“This is a big step forward for contribution reserving strategy that now has the ATO backing and a system that works without incurring the expense of an ATO objection,” said Mr Butler.
“We used to say to taxpayers, don’t do a contribution reserve unless you’re prepared to object – that scared people off,” he added.
“This new system is going to make it a lot more effective to do contribution reserving without the downside and administrative hassle of an objection and the extra expense.”