Death Defying**: AKA Contribution reserving

Contribution reserving has for many years been largely viewed as a strategy that in most instances will be too aggressive to comply with the approach the Tax Office is comfortable with in this space.

This said, the Tax Office Determination (TD) 2013/22 does appear to confirm that, subject to the governing rules of an SMSF trust deed, some basic contribution reserving can occur.

In particular, assuming the trust deed and the fund’s reserving strategy, are complied with, then TD 2013/22 supports an approach along the following lines:

1. a fund member can make a contribution to a SMSF that is double their concessional contribution cap in the one financial year;
2. half of the contribution can then be applied to, for example, an 'unallocated contribution account'. Arguably, an unallocated contribution account is analogous to a reserve account;
3. the other half would then be counted towards the relevant member's concessional contribution cap for the first financial year; and
4. in the second financial year, the trustees of the fund would resolve to allocate the amount applied to the unallocated contribution account to the relevant member and it would then be applied to that member's concessional contribution cap in the subsequent year - i.e. the year of actual allocation.

As usual, please make contact if you would like access to any of the content mentioned in this post.

** for the trainspotters, the title today is riffed from the Hoodoo Gurus song 'Death Defying'.

View here: