Deferred allocations effective, but need care

deferred allocation

The key to an effective deferred allocation strategy is understanding what is required of a fund at the time of making a contribution and allocating a contribution, a technical expert says.

Understanding the requirements of a fund at the time of making a contribution and allocating a contribution is key to an effective deferred allocation strategy, a technical expert has said.

Heffron managing director Meg Heffron said deferring the allocation of contributions could be useful when helping members stay within their contribution caps, but pointed out advisers had to consider eligibility rules and tax deductions for concessional contributions in the year a contribution was made in order for such a strategy to work.

By contrast, Heffron noted factors actually impacting on contribution caps, such as the total super balance (TSB) for the previous financial year, the extent to which the cap had been used, and bring-forwards, should only be taken into account in the year the contribution was allocated.

“In the year the contribution is actually made, we care about things like: were you allowed to make the contribution, are you of the right age or have you met a work test,” she said today at the virtual SMSF Association National Conference 2021.

“And we care about tax deductions. Tax deductions are all about when the contribution was made, the year in which it was made by the contributor and received by the fund.

“When it comes to the year of allocation, that’s when we care about contribution caps, we care about how much the TSB was the previous 30 June, we care about how much of the cap has been used and where you are in a bring-forward period.”

Last week, two submissions made to the government ahead of the budget, from the Tax Institute and the Australian Institute of Superannuation Trustees, noted the impact of the COVID-19-related early release of superannuation on member balances could be reversed by providing expanded contribution caps and a one-off government contribution for low-balance members.

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