The ATO has declared it will be closely scrutinising any apparent changes in the use of reserves in response to the newly imposed transfer balance cap and total super balance.
“We’ve heard suggestions that [the recent] measures and changes will likely see an increase in reserves in SMSFs and the rationale being that monies held in reserves don’t count towards any member’s transfer balance cap or total super balance,” ATO SMSF segment assistant commissioner Kasey Macfarlane said at the recent Tax Institute Superannuation Conference in Sydney.
Macfarlane conceded the law does not actually prohibit the use of reserves in an SMSF, but stipulated the regulator’s stance on the use of them.
“From the ATO’s perspective we consider that there are limited circumstances where it is necessary to establish and maintain a reserve in an SMSF,” she noted.
“Given that we think there are limited circumstances where it’s appropriate, where SMSFs use reserves beyond those limited circumstances, it may suggest that they are being used as part of broader strategies to circumvent new limits and restrictions under the super changes and that type of activity will attract close ATO scrutiny.”
She detailed the types of circumstances that would arouse the regulator’s suspicions as to the motivation behind a reserving strategy.
“Any increases in the creation of new reserves or in the balance of existing reserves over the coming 12 months will be attracting a lot of ATO attention,” she cautioned.
“So I just wanted to warn you if clients are looking to adopt strategies where they are using reserves to circumvent some of those changes, then they may want to think very carefully about it and definitely make sure that they seek advice before doing so.”
To clarify the regulator’s stance on the issue, she said supporting material was going to be released shortly.
“We will be issuing some draft public guidance about our views in relation to this and because it will be draft, it will be subject to public consultation,” she revealed.