SuperConcepts general manager of technical services and education Peter Burgess says the ATO has signalled that it will look at situations where SMSFs are using contribution reserves and investment fluctuation reserves in order to keep people under the proposed balance thresholds.
“If they see [this happening] they are likely to impose part 4A of the tax avoidance provisions,” Mr Burgess told delegates at the SMSF Adviser Strategy Day.
“So they are going to be scrutinising a situation where it can be clearly demonstrated that you have held back investment earnings in order to get someone under the balance threshold.”
Mr Burgess suggested SMSF practitioners may want to look at strategies such as contribution splitting with a spouse instead for their clients, as the concessional contributions caps will only apply on a per member basis, if the legislation is passed.
“Now, the way this legislation is going to work from what we can see, we can actually split a catch-up contribution, so if the client makes one of these large catch-up contributions, there’s nothing to stop them splitting 85 per cent of it with their spouse,” he said.
“Now, why would you do that? Well, it helps you to stay under the $500,000 balance threshold.”
Mr Burgess said the ATO recently confirmed that if the client is between 60 and 65 and has previously signed a retirement declaration saying they’re now retired and have moved into the pension phase, it doesn’t necessarily mean they can’t receive split contributions.
“As long as they sign another declaration saying that they’re not retired, then split contributions can be received,” he said.
“Now, I’m not saying you put in false declarations here. They have to have an intention to return to work. But just because they’ve previously signed a retirement declaration after age 60, and are between 60 and 65, it doesn’t mean they’re excluded from receiving spouse contributions.”