ATO, Strategy

Pre-July 2017 reserves on ATO radar

The regulator has made recent comments on its monitoring activity for reserves.

The ATO is keeping a watchful eye on SMSFs that created reserves just prior to July 2017 in the lead-up to the implementation of the 2016 super reforms, a lawyer has warned.

DBA Lawyers director Dan Butler told an SMSF Online Updates webinar last Friday that ATO commissioner James O’Halloran told a Tax Institute conference in August the number of SMSFs with reserves in 2016 was just below 2500, while in 2017 there were about 1900 funds with reserves.

It was only at a Chartered Accountants of Australia and New Zealand conference in September that O’Halloran confirmed around 690 funds out of the about 1900 funds, or 35 per cent, had created reserves just prior to July 2017.

“So here’s the ATO trying to posture to say: ‘Look, if you’re into reserving prior to July 2017, we would see that as an aggressive move. We’re keeping an eye on you,’” Butler said.

“They probably know quite well who the 690 funds are that have created reserves in this year.”

The average balance of reserves of the 1900 funds in 2017 was around $192,000, but of the 690 funds with new reserves, the average balance was $95,000.

Some commentators have suggested those reserves may mainly relate to funds winding up defined benefit pensions.

“All I’m suggesting is if you’ve got some of those 690, you better make sure you’ve got your position covered because the ATO may come looking because they probably know who you are,” Butler said.

“Then they’ve actually now got a grounding that with those funds they know from year-to-year how much reserves there are and whether they’re decreasing and so on, so the ATO’s information is getting better.”

He said, however, the figures of funds with new reserves may not necessarily reflect the entire population of funds as there are quite a few funds with defined benefit pensions that have reserves, and these are not reflected in the figures provided by the ATO.

“So the figures aren’t considered entirely accurate. It looks like the best information we have. And the ATO is keeping a watchful eye on these figures,” he noted.

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