Your questions answered

SMSFs and process for ‘contribution reserving’

Article published on: 22-04-2024

My client has an SMSF and we are looking into using a ‘contribution reserving strategy’. He wants to make a separate personal super contribution and claim it as a tax deduction this financial year, but have it count towards his 2024/25 concessional cap. What steps and processes do we need to follow to ensure this strategy is implemented correctly?

ANSWER

For this strategy to be valid, it must be supported by the SMSF trust deed and certain steps followed, including documenting all trustee decisions and allocating the contribution within the allowable timeframes.

The client will need to submit their notice of intent to claim a deduction within the ordinary timeframes and claim the deduction in their tax return relating to the year the contribution was made (not allocated).

Where the contribution reserving strategy is implemented, the fund will need to complete a ‘Request to adjust concessional contributions’ form, which can be found on the ATO’s ‘Request to adjust concessional contributions’ page (see QC 46558).

Explanation

Where an SMSF member makes a separate personal contribution in June, it’s possible to claim the tax deduction in the financial year it’s made, but have the contribution counted towards the following financial year’s contribution cap.

Personal super contributions must ordinarily be allocated to a member’s account within 28 days after the end of the month following the contribution. If a contribution is made in June, it must be allocated to a member’s account before 28 July (unless it’s not reasonably practical to allocate within this timeframe).

The ATO have confirmed in TD 2013/22 that the amount of the contribution in one financial year (year 1) that’s allocated to a member in the subsequent financial year (year 2) can be included in the member’s concessional contributions cap for year 2 under s291.25(3) ITAA 97.

To this end, if a contribution is made before June, it will not ordinarily be possible to allocate the contribution in the following financial year.

Administration

Despite the contribution being allocated to the member in the new financial year, the fund will still have to report the contribution in the year it’s received, rather than the year it’s allocated to a member.

Note that a separate contribution needs to be made to implement this strategy. In the ATO Superannuation technical subgroup meeting held on 5 June 2012, it was suggested that the regulation governing the allocation of ‘a contribution’ (SISR 7.08(2)) requires the whole amount of each contribution to be allocated at one time. To this end it’s not possible to allocate part of one contribution in one year and the other part in the next financial year.

This communication is prepared by Actuate Alliance Services Pty (ABN 40 083 233 925, AFSL 240959), a related entity of MLC Wealth Limited (ABN 97 071 514 264). This is for financial adviser use only – it is not to be distributed to clients. The communication has been prepared to provide financial advisers with technical resources, support and knowledge. The information in this document is current as at the date of publication and reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue, and may subject to change. In some cases, the information has been provided to us by third parties. Whilst care has been taken in preparing this document, no liability is accepted for any errors or omissions in this document, and loss or liability arising from any reliance on this document. Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we therefore recommend your client consult with a registered tax agent.