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Succession tipped to be the focus of reserves crackdown

Succession tipped to be the focus of reserves crackdown

week at a glance
Miranda Brownlee
08 March 2018 — 1 minute read

With the ATO expected to soon release further guidance about reserves, one consultant predicts it will be aimed at the application of reserves in SMSFs in respect of succession and estate planning.

Smarter SMSF chief executive and co-founder Aaron Dunn said when the government first released the super reform measures in the 2016 budget, which were meant to be aimed at removing the ability for superannuation to be used as an estate planning tool, they failed to address the use of reserves.

“They had left out one of the most powerful tools that could be used for estate planning purposes and that was reserves and their ability to allow for intergenerational wealth transfer through an SMSF,” he explained.


“This seemed to be a glaring omission, but there was no amendment to it. Therefore, my gut feel is that there's a pretty strong push here from government that the ATO is to apply a very aggressive tone here to the use of reserves to ensure that people don't start to facilitate these for the purposes of the transfer balance cap and total superannuation balance."

Mr Dunn said currently there is nothing in respect of the legislation that says a fund cannot use reserves.

“If we look at section 115 in the SIS Act, it states and makes it quite clear that a fund can use reserves unless the trust deed prohibits the use,” he said.

“We can have reserves around investment fluctuation, there are also investment reserves and mortality reserves for defined benefit pensions, but there are specific and legitimate circumstances where they can be applied, and this is in essence where the ATO is going to be providing some guidance on what they think are specific and legitimate purposes.”

Mr Dunn said the industry is looking to get more guidance in terms of the ATO’s views on these arrangements and how they might look to apply sole purpose or part IVA.

“Where they deem fit, they're going to think about the potential application of sole purpose, and Part IVA in respect to these arrangements, so it'll be interesting to see how this pans out,” he said.

“The application of reserves as part of succession inside a fund certainly warrants the ATO to be giving [reserves] consideration in the current environment.”


Succession tipped to be the focus of reserves crackdown
week at a glance
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