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ATO releases reserves guidance

The ATO has issued an SMSF Regulator’s Bulletin detailing its stance on the use of reserves in SMSFs.

SMSFRB 2018/1 indicates the concerns the regulator has with the use of reserves and outlines the types of reserves it feels are not appropriate to be used within an SMSF structure.

“Following the introduction of the government’s superannuation reform measures announced in the 2016/17 budget, we are concerned that some SMSFs may implement strategies utilising reserves that are designed to circumvent restrictions imposed in the superannuation and income tax legislation and thereby weaken the integrity of these measures,” the ATO bulletin said.

“The use of reserves by SMSFs outside limited and legitimate circumstances may suggest that they are being used as part of a broader strategy to circumvent these restrictions.”

The tax office stipulated it will now be monitoring the use of reserves closely within the context of the sole purpose test under section 62 of the Superannuation Industry (Supervision) Act (SISA) and Part IVA of the Income Tax Assessment Act 1936.

The regulator did point out none of its activities will be dedicated to investigating legitimate reserves established before 1 July 2017.

Specifically, the ATO has outlawed the use of particular reserves by SMSFs, including those for the purpose of smoothing administration costs and investment returns.

However, it has allowed the continued use of contribution reserves. On this subject, it said: “We understand the suspense accounts used to hold contributions pending their allocation under division 7.2 of the SISR (Superannuation Industry (Supervision) Regulations) to an accumulation interest of a member are commonly referred to as ‘reserves’ … we do not consider that these accounts are reserves for the purposes of the SISA and SISR.

“SMSF trustees are able to accept contributions to these accounts pending allocation to the relevant member in accordance with division 7.2 of the SISR.”

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