A technical specialist has cautioned SMSF practitioners and their clients against using a reserving strategy for non-concessional contributions as the ATO does not provide documentation to support the process and is likely to scrutinise the purpose of the contribution.
“I often take a fairly conservative approach with contribution reserves because there is no [ATO] form,” Smarter SMSF technical and education manager Tim Miller told attendees of a SuperGuardian webinar held yesterday.
“There’s a form for concessional contributions, but not for non-concessional contributions, [so] you’re ultimately trying to indicate to the tax office that you have made this non-concessional contribution with the direct purpose of using a reserving strategy to move it into the next financial year.
“They’ll probably question why and whether [the contribution] is appropriate or not. Ultimately, it’s a much harder process with non-concessional contributions and I haven’t actually seen it be successful.”
If trustees were intent on using a reserving strategy in this situation, Miller recommended consulting a specialist firm to draft a compliant form to enable the reserving and transition of a non-concessional contribution.
Regarding concessional contributions to a fund, he highlighted the importance of precision and timing in lodging documentation to the ATO as key to achieving a favourable outcome.
“If you are going to use the process and use that form to prepare and lodge with the ATO, then you need to make sure you’ve got the appropriate minute that highlights the receipt of the money in June and that the money is going to be placed into the contribution reserve,” he noted.
“Then you need to have your minutes to allocate that contribution prior to 28 July in the following financial year. The ATO also suggests that your trustee should be providing for this from a strategy point of view.
“I’ve known people who have tried to use this strategy and have still been caught out, so [you] need to make sure that they lodge their form and apply appropriately.
“Normally you want to try and time the lodgement of the form not so much with the timing of the contribution, but the timing of personal and SMSF returns to ensure that all the amounts are allocated appropriately.”