Compliance & Regulation, Retirement

ATO reserves position contrary to law

The ATO’s current stance on the elimination of some existing reserves runs contrary to the law and may result in SMSF trustees having to set up an accumulation account to ensure compliance in this area, a technical expert has said.

“There are plenty of reasons why trustees may have legacy reserves – it could be an anti-detriment reserve which is no longer needed because of a change in law … if trustees are in those situations, they have to start allocating those reserves [to members] because they no longer have a clearly articulated purpose and they can only allocate it to their accumulation interest. They can’t allocate them to their existing pension interests,” SuperConcepts technical services and education general manager Peter Burgess said.

“It means if the trustee only has a pension interest in the fund, they’re going to have to set up an accumulation interest for the sole purpose of allowing a reserve to be allocated to it.”

According to Burgess, the ATO’s stipulation reserves cannot be allocated to pension interests is the most controversial aspect of the regulator’s stance on the issue.

“Of course, the law actually allows us to do it. We can’t allocate contributions to an existing pension account, but we can allocate reserves, but the ATO is saying no because obviously reserves that are allocated to existing accounts don’t count against the transfer balance cap,” he noted.

“So they’re worried about self-managed super fund members doing this as a way of circumventing the caps.”

He cited SMSFs running a life expectancy pension where the relevant member has come to the end of the term with money left over as another reason a fund could have a legacy reserve.


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