ATO, Compliance, Pensions, SMSF, Superannuation

SMSF reserves under control

Superannuation reserves

The ATO has seen the number of reserves being used by SMSFs significantly diminish and no longer regards this as a concerning compliance issue.

The issue of SMSFs using reserves has become less of a concern for the ATO with regard to both newer strategies involving them, as well as any pre-existing ones establish under previous compliance rules.

“We have seen a decline, which is great, in the amount of reserves in SMSFs and probably because a few of them have now paid out some of those legacy pensions that were supporting those reserves,” ATO SMSF trustee experience director Kellie Grant told selfmanagedsuper.

Grant revealed a positive sign has been the fact regulator fears the reserves would be used more as a mechanism to manage or even avoid total super balance and transfer balance cap issues have not eventuated.

To this end, she acknowledged the ATO has been monitoring the use of reserves closely since 2017 and has not been able to identify any worrying trends.

According to Grant, the current situation with the use of reserves falls into line with the regulator’s attitude on the subject.

“As you know, our view is that an SMSF doesn’t really need to have a reserve unless it’s supporting one of those legacy pensions,” she said.

She also took the opportunity to reiterate the circumstances where the ATO does not consider a reserve has actually been used.

“With respect to those SMSFs that use a strategy where individuals make a contribution in one financial year and then allocate it to a member in the next – we don’t really see that as being the use of a reserve as such,” she noted.

Since this strategy is seen as employing a suspense account rather than a reserve, she confirmed there are no associated compliance actions required.

“I did want to take the opportunity to point out that people don’t need to report because we are still seeing some trustees report those sort of suspense accounts as a reserve in the return when they really don’t need to,” she said.

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