ATO to release further guidance on reserves
The ATO is set to release further guidance outlining the circumstances in which it is appropriate for an SMSF to establish and maintain a reserve.
In light of the 1 July changes, the ATO has updated its frequently asked questions page for SMSF trustees to include information about the use of reserves by SMSFs.
The ATO said it is currently monitoring the use of reserves by SMSFs following the introduction of new limits and restrictions including the transfer balance cap and total super balance.
“While the establishment of a reserve is not specifically prohibited, we consider that there are very limited circumstances when it is appropriate for a reserve to be established and maintained in an SMSF,” the ATO said.
“The use of reserves beyond these circumstances may suggest they are used as part of a broader strategy to circumvent the new limits and restrictions.”
The ATO warned that any unexplained increases in the creation of new reserves or in the balances of existing reserves maintained by SMSFs is “likely to attract close scrutiny”.
The tax office has also announced that it will issue further guidance on when it may be appropriate for an SMSF to establish and maintain a reserve.
“In the meantime, if you are considering using reserves in your SMSF, we strongly encourage you to seek independent professional advice or approach us for advice before doing so,” the ATO cautioned.
Townsends Business and Corporate Lawyers special counsel Michael Hallinan said this update from the ATO is likely aimed at SMSF trustees attempting to use reserves get around the $1.6 million cap so that they can contribute another $100,000 or so.
“Most SMSFs don't operate investment reserves and haven't undertaken in any investment smoothing at all,” said Mr Hallinan.
“You have a reserve in an SMSF either because you're running a complying pension or because for the last five or six years you've adopted a strategy of trying to finance anti-detriment payments, and that strategy is now redundant.”
MIRANDA BROWNLEE
21 Sep 2017
smsfadviser.com
Latest Newsletters
Hot Issues
- Aged care report goes to the heart of Australia’s tax debate
- Removed super no longer protected from creditors: court
- ATO investigating 16.5k SMSFs over valuation compliance
- The 2025 Financial Year Tax & Super Changes You Need to Know!
- Investment and economic outlook, March 2024
- The compounding benefits from reinvesting dividends
- Three things to consider when switching your super
- Oldest Buildings in the World.
- Illegal access nets $637 million
- Trustee decisions are at their own discretion: expert
- Regular reviews and safekeeping of documents vital: expert
- Latest stats back up research into SMSF longevity and returns: educator
- Investment and economic outlook, February 2024
- Planning financially for a career break
- Could your SMSF do with more diversification?
- Countries producing the most solar power by gigawatt hours
- Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
- Quarterly reporting regime means communication now paramount: expert
- Plan now to take advantage of 5-year carry forward rule: expert
- Why investors are firmly focused on interest rates
- Super literacy low for cash-strapped
- Four timeless principles for investing success
- Investment and economic outlook, January 2024
- Wheat Production by Country
- Time to start planning for stage 3 tax cuts: technical manager
Article archive
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015