The new reporting requirements for unallocated concessional contributions received by an SMSF in June will increase the amount of administration required for individuals looking to manage their own retirement savings, according to Heffron SMSF Solutions.
Tax determination TD 2013/22 released late last year by the Australian Taxation Office (ATO) dictates any concessional contributions received and allocated to a reserve now need to be reported in the member’s section of the SMSF annual return in the year in which the contributions were received and not in the year the members allocation is made.
“The ATO’s administrative assumption is that contributions are always made and allocated in the same year, so affected SMSF members will need to draw the circumstances to the ATO’s attention when this assumption does not apply,” Heffron said.
“In our view, this will clearly mean an increased administrative burden for all concerned, including the ATO, and we wonder to what end.”
The rules governing SMSFs dictate trustees must allocate a contribution received in June, and initially held in a reserve, to a specific member by the following July 28.
Standard reporting practice had until now seen trustees report these types of contributions in June as assessable income in the year in which it was received in the annual return, as well as include them as a reserve account amount in the assets and liabilities section.
The contribution would then be reported in the members account in the annual return of the following year once it had been properly allocated.
The SMSF specialist service provider pointed out the ATO had already admitted TD 2013/22 would mean many SMSF trustees would be assessed incorrectly in regard to the concessional contribution caps.
The new reporting obligations will see the ATO issue affected trustees with a pre-assessment letter alerting them to the potential contributions cap breach. If this situation cannot be rectified immediately, the SMSF members will need to raise an objection.
“Objections will need to include details of the arrangement that was entered into, including evidence of when and how the relevant contributions were allocated to the member and in relation to any deduction claimed,” Heffron said.
“The arrangement will also need to be implemented in a manner consistent with TD 2013/22.
“Perhaps, from the ATO’s perspective, this method of reporting will ensure that not only is the ATO aware of all instances of contribution reserving for contribution cap purposes, but that it will also be able to monitor whether or not the contribution reserve has been implemented in accordance with TD 2013/22.”
