The ATO SMSF Regulator’s Bulletin (SMSFRB) on the use of reserves by SMSFs is not an indication that systemic issues have been identified, nor is it in response to a spike in the use of reserves by SMSFs, according to the tax office.
Outgoing SMSF segment assistant commissioner Kasey Macfarlane told selfmanagedsuper it was the introduction of the transfer balance cap and total superannuation balance measures on 1 July 2017 as part of the super reforms package which triggered the release of the bulletin by the ATO.
“Certainly it’s not in response to anything that we’re seeing in terms of the spike of the use of reserves in SMSFs. But we have had some feedback that SMSFs might be considering using reserves as a way of circumventing the transfer balance cap and total super balance measures,” Macfarlane explained.
“So just to be consistent with our overall philosophy of preferring prevention rather than correction, we thought it was appropriate to get some timely advice out there, just highlighting those limited circumstances where we think that it may be appropriate for an SMSF to have a reserve.”
While there was also no evidence of an increase in reserves since the super reforms took effect, Macfarlane said there have been increased discussions within the SMSF industry about the correct use of reserves and how they interact with the new measures.
This has led the ATO to believe it was appropriate to issue today’s bulletin, SMSFRB 2018/1, to outline its position on the issue.
“The superannuation changes introduced a number of new restrictions and limits for people. So it’s natural that they would be thinking about different approaches and options they might be able to apply to maximise the outcomes in terms of their superannuation investments,” Macfarlane added.
In SMSFRB 2018/1, the ATO said it will not be scrutinising actions taken prior to 1 July 2017 before the super reforms took effect.
SMSFs might use investment reserves to smooth the impact of market fluctuations but this is unnecessary as SMSFs generally have a limited membership base in terms of numbers and the lifetime of those members.
Therefore, smoothing of returns over the period of the membership is unnecessary as the profits and losses will ultimately be met by the same members over the membership with the same net result, the bulletin said.
The tax office also declared administration reserves unnecessary as SMSFs are closely held entities with limited membership, and they do not have large changing membership bases unlike Australian Prudential Regulation Authority-regulated funds.