The use of contribution reserving as a strategy within self-managed super funds has been growing in popularity as a year-end planning tool, in particular following the release of ATOID 2012/16. Recently, we have seen the Commissioner provide more definitive guidance on the use of this contribution reserving strategy through the release of TD 2013/22, which considers concessional contributions and their timing allocation after the end of a financial year in which the contribution was made.
The public ruling is not a change in tack by the Commissioner on the application of how both income tax and superannuation law operates with contribution reserving. However, with effect from 1 July 2013 it is the operation of Division 291 in the ITAA 1997 that deals with what are an individual’s concessional contributions for a financial year.
Continued ‘wriggle room’ for SMSFs, not so much APRA funds
Whilst SIS Regulation 7.08(2) has previously provided for up to 28 days after the end of the month in which to allocate a contribution, as a result of the data and payment standards from 1 July 2013, there are now two different time periods within which a trustee must allocate a contribution to the member:
- All regulated super funds (other than SMSFs) will be required to allocate the contribution within three (3) business days after receiving the contribution and information relevant to the contribution;
- Other regulated super funds not covered above (including SMSFs) will continue to comply with SISR 7.08(2)
Interestingly, this tax determination shows no example of the taxpayer ‘double dipping’ on the tax deduction for the financial year and holding an amount of the contribution to allocate in the following year in accordance with SISR 7.08(2). This was a key feature of the contribution reserving strategy in ATOID 2012/16. It appears the Commissioner’s determination is clarify the interaction between SIS and Tax laws and how the timing discrepancy can mean amounts can straddle different financial years. This doesn’t however prevent this strategy from occurring, however as I have previous stated on my blog, expect a potential excess contribution tax assessment (or at least letter of advice) from ATO. You will need to then formally advise of the operation of this contribution reserving strategy.