Speaking to SMSF Adviser, AMP SMSF’s Peter Burgess explained that many have previously recommended this strategy should only be used for personal contributions which are claimed as a tax deduction, because with these contributions there are potentially more bases on which the trustee can argue the amount is unallocated.
“With an SG or salary sacrifice contribution it can only be a concessional contribution and only in respect of an employee of the employer so the trustee has less of a basis not to allocate the contribution to the member’s account,” Mr Burgess said.
However, AMP SMSF received guidance from the ATO last week which suggests the ATO is not concerned about the reasons why the contribution was not allocated.
“As long as this new form is used and proper records are kept, the reserving SG and salary sacrifice contributions is OK. It just means the application of a concessional contribution reserving strategy is perhaps much broader than first thought,” he said.
As reported in SMSF Adviser, the ATO has created a new system for SMSFs using a contribution reserving strategy with the release of a form titled Request to adjust concessional contributions, following complaints about costly and complex roadblocks to implementation.
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I suspect the Data & Payment Standards will put paid to this practice in due course. They have already has reduced the time to allocate for APRA funds with SMSFs next on the list.
In this digital age, old practices are becoming increasingly redundant and not excusable.
[quote name=”Kym Bailey”]There can be NO argument for a SMSF using the strategy except for tax purposes.[/quote]
Except of course for the fact that it’s the law. SISR reg 7.08 makes no distinction between large/retail/industry/SMS funds in allowing the reserving of contributions.
The ATO is making a fool of itself persisting with not only advertising this strategy but facilitating it via a form.
There can be NO argument for a SMSF using the strategy except for tax purposes.
My understanding is the idea of the reserve is the trustee doesn’t know how to allocate a contribution. I expect its there for the large funds. If 2 SMSF members work for the same employer and the Trustee just knows that the employer made a contribution, the Trustee can’t allocate it and so puts it to a contributions reserve.
Super stream will remove uncertainty from these contributions and we’ll end up with large and small super funds having only weak arguments for claiming they can’t allocate a contribution and will need a reserve. The days of the contribution reserve I’m sure are limited.
They can be really helpful though for people turning 75 in May or June, 65 and retired in may or June or if your income is much higher as a one off and it puts you into a higher tax bracket.