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Contribution reserving strategies far-ranging

The application of contribution reserving strategies was perhaps broader than first thought, following the release of an ATO form and the tax office’s position not to question why a contribution was not allocated.

The ATO released the form, NAT 74851 “Request to adjust concessional contributions”, in August.

Section H lists superannuation guarantee (SG) contributions, salary sacrifice and member-deductible contributions as the types of contributions that can be requested to be adjusted.

“Now what’s interesting about that is that we’ve always worked on the basis that you can’t reserve SG contributions or salary sacrifice contributions because we know exactly who those contributions belong to and we know exactly what type of contribution it is,” AMP SMSF head of policy, technical and educational services Peter Burgess told the inaugural AMP SMSFs in Practice Day in Sydney last month.

“We’ve always worked on the basis that you have to have a reason as to why you’re not allocating a contribution.

“We clarified this with the ATO and they came back and said they’re not concerned with the reason as to why a contribution is not allocated.”

That meant it was open for advisers to use reserving strategies for SG contributions and salary sacrifice contributions, Burgess said.

“Which means the applications of these contribution reserving strategies is perhaps a little broader than we first thought,” he said.

“So if you have a client who has maxed out their concessional contributions and they want to make another SG contribution before the end of the financial year, then you can [decide] not to allocate to the account until 28 July.

“We’ll always work from the basis that they can only be member-deductible contributions because the client may not be sure as to whether they’re claiming that as a tax deduction or not, and for that reason we can’t allocate because we don’t know what type of contribution it is.

“I’m not sure that was the original intent behind being able to reserve contributions, but given the ATO seem to be happy with it, the allocation of these strategies seem to be broader than first thought.”

The other factor to note was the form could only be used for concessional contributions, he said.

“If you are putting in a contribution reserving strategy or non-concessional contributions, you still need to go through the old objection process in order to have that contribution reported in the right way,” he said.

NAT 74851 was a useful form for contribution strategies, but it should be lodged before or at the same time both the SMSF annual return and the member’s individual tax return were lodged, he said.

“It enables you to bypass the normal objection process you have to go through when your client receives an excess determination,” he said.

“Now we know these strategies work because there’s a disconnect between when a contribution counts against your caps and when you’re able to claim it as a tax deduction.

“One of the problems with these contribution reserving strategies is that the ATO requires us to report the contribution as if it had been allocated in the year the fund received it, which means you end up getting an excess determination and then you’ve got to go through the process of objecting that.”

He said the form provided a much simpler process for SMSFs to request the reporting of the concessional contribution to be adjusted and should be used going forward.

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