A technical specialist has recommended against using a single transaction when looking to take advantage of a contribution reserving strategy to claim an additional tax deduction for an SMSF in one income year.
According to Accurium senior SMSF educator Anthony Cullen, a common question trustees ask is whether a contribution of, for example, $60,000 can be made in June and split, allowing $30,000 to be allocated immediately to a particular member and the remaining $30,000 to be channelled into a contributions reserve to be assigned to that person in July.
“Generally, best practice is to try and avoid single contributions [for this purpose]. It is much cleaner if you use two separate contributions because you can then put the paperwork together [more clearly],” Cullen told attendees of a recent technical webinar he hosted.
He revealed the ATO had specifically been asked about this practice in relation to a property during a National Tax Liaison Group meeting several years ago.
“The ATO basically said no, when it comes to a property you can’t allocate part of that single contribution [to a reserve],” he noted.
“It was alluded to that you would apply the same logic to a cash contribution and the ATO’s view at that time is you should not be splitting single contributions.”
Cullen revealed in subsequent conversations the regulator confirmed it did not like the ability to split a single contribution, but conceded there is nothing in the law to prevent trustees from doing it.
He admitted the position the ATO declared regarding this subject took place several years ago, but suggested that fact should not influence the way trustees go about implementing a contribution reserving strategy.
“I would [still] tread with caution if you are going to be looking at a single contribution [in these circumstances],” he said.
“Having said that, I have seen it being implemented and I know that the funds and the individual were not assessed under the excess amount and they were able to allocate it between years.
“But the safest bet is [not to] do it.”
