Business Concepts Group director and SMSF specialist adviser Chris Reed said in his most recent podcast that a reserving strategy in relation to concessional contributions is one that is unique to SMSFs and can be used in the following year’s cap.
“It’s got a complexity around it that you probably wouldn’t be able to do yourself as an SMSF trustee, and it’s something you’d probably need some advice around,” he said.
“But if you’ve got the cash flow and you’re chasing a tax deduction, then potentially you can get some really large tax deductions.
“If we look at the $27,500 concessional contribution for this year, firstly you can ask if there could be some concessional contributions carried forward”.
“If you use a reserving strategy, you can grab next year’s $27,500 contribution and get a deduction this year, and get some fairly large tax deductions flowing through by optimising the use of all those different types of strategies.”
Mr Reed said in the 2022 financial year he had clients planning around Capital Gains Tax events, who were able to put $60,000-$70,000 tax-deductible contributions into super using these carried forward rules and the tax savings were sizeable.
“It could definitely be a very large deduction and the way the property markets have gone in the last few years, if you did sell a cproperty for quite a large gain, being able to get that big tax deduction with a super contribution could really reduce the tax that you pay in CGT,” he said.
“There’s a lot of paperwork involved. It’s got to be prepared properly and done with the ATO in different sequences, so don’t try and do it on your own.
“We’ve certainly had a lot of clients over the years who are higher income earners who have used these strategies in terms of being able to get extra tax deductions, particularly towards the end of their working life where they’re trying to maximise their super as well.”
Mr Reed said non-concessional contributions, which are tax contributions, do have access to the bring forward rules. These NCCs currently sit at $110,000 but if using the bring forward rules SMSFs can contribute up to $330,000 in one particular financial year.
However, he warned that if clients do use this rule in full, they are locked out of making any more NCCs for at least a couple of years.
“But that does give you the capacity to get some larger contributions in” he said.
“There are several criteria around whether you can use the bring forward-in rules in full or only partly or not at all – it’s all built around your total super balance, and again, it’s a little bit complex, and you might want to get some advice if you’re looking at making some of these contributions.
“The re-contribution strategy is one where we’re trying to turn the taxable component of super into a tax-free component.”
