Superannuation Laws authorise the Trustee to establish one or more reserve accounts for the Fund. A reserve account is where the Trustee has set aside surplus assets of the Fund into an account which are not directly for the benefit of a member. A contributions reserve account of one of these reserves.

A contributions is not really a reserve, it's more a short-term holding account for the warehousing of contributions for a term no greater than 28 days after the end of the month the contribution was made.

Contributions reserves are also known as unallocated contribution accounts.

The trust deed of the SMSF must permit the use of contributions reserve. The standard SMSF trust deeds we utilise include provisions permitting contribution reserve strategies.

The main strategy for contributions reserving relates to concessional contributions.

Concessional contributions are those contributions that are assessable to the trustee of the fund – section 291-25 of the Income Tax Assessment Act 1997.

The general concessional contributions cap for the 2019-20 income year is $25,000.

Basically, there is a discrepancy between the Income Tax Assessment Act 1997 on when a tax deduction can be claimed, versus the SIS Regulations (R7.08) in regards to when a contribution must be allocated to a member.

If the trustee of an accumulation fund receives a contribution in a month, the trustee must allocate the contribution to a member of the fund:

(a) within 28 days after the end of the month; or

(b) if it is not reasonably practicable to allocate the contribution to the member of the fund within 28 days after the end of the month — within such longer period as is reasonable in the circumstances.

It means that any concessional contribution made the in the month of June can be allocated to a member of the SMSF by the 28th of July.

This effect of this is that a tax deduction is claimed in year 1, however the amount does not count towards the members concessional contribution cap until year 2.

For example an individual who crystallised a capital gain can effectively bring-forward their concessional contribution cap from the NEXT financial year and use that amount to reduce their taxable income. To put it another way, it's possible to claim two amounts of $25,000 concessional contributions in the same financial year.
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The downside is that in year 2, the individual will have $0 available under their concessional contributions cap, meaning any contributions made will be excess concessional contribution (unless they are made in June of year 2 and allocated by 28 July of year 3).

Before implementing a contributions reserving strategy, check to ensure the individual doesn't have unused carry forward concessional contribution.

More on this here: Unused carry forward concessional contributions

Of course it's possible to combine both a contributions reserve and carry forward concessional contributions (assuming the individual is eligible).

It's essential before the individual and SMSF lodges their respective income tax returns that a Request to Adjust Concessional Contributions [NAT 74851] form is completed and sent to the ATO.

The individual must also complete a s290-170 Notice of Intent to Claim a Deduction for Personal Superannuation Contributions. This form is required to enable the person to claim the personal super contribution as a tax deduction.

Intello can generate the relevant trustee minutes to create a contributions reserve as well as ensure the SMSF trust deed contains the relevant provisions to allow contribution reserving.

Intello can also complete the ATO request to treat the potential excess contributions as being allocated to the next financial year to ensure no excess concessional contributions notices are issued.

The accounting of the contributions must also be correctly processed and recorded in the SMSF accounts as well as the annual return for the fund.

The relevant trustee minutes to create the contributions reserve should be executed by the trustees of the SMSF at the time of creation (i.e. during June of the financial year when the contribution(s) are made or shortly after).

Due to the additional work involved in correctly implementing a contributions reserve, Intello levies an additional fee.

The fee includes:

The fee for the above is Price on Application.

Please contact Intello for further information and the fee relevant for your client situation.