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Wealthy clients in ATO's sights with reserves move

SMSF members currently holding significant funds in reserves will soon face questioning from the tax office, as well as the tax professionals who advise them. 

SMSF Miranda Brownlee 08 November 2017
— 1 minute read

ATO assistant commissioner Kasey Macfarlane said there has been some speculation in the sector that the new measures and super changes, particularly the transfer balance cap and the total superannuation balance are likely to see an increase in the use of reserves in SMSFs. The ATO will be monitoring this in light of the superannuation reforms. 


“The theory is that amounts in reserves don't belong to anyone, so they don't count towards anyone's transfer balance cap, or total super balance,” Ms Macfarlane told delegates at the SMSF Summit in Sydney last week. 

“From our perspective, it's too early to tell at this stage whether or not that is actually playing out in reality and there have been increases in the use of reserves, but it is relevant to note that this is another area that the ATO will be closely monitoring in the post reform environment.”

The ATO has previously stated that the use of reserves by SMSFs was a compliance focus for the ATO, and that any unexplained increases in the creation of new reserves or in the balances of existing reserves maintained by SMSFs would be “likely to attract close scrutiny”.

Ms Macfarlane said that while superannuation and taxation laws don’t prohibit or prevent the use of reserves in SMSFs, the ATO considers that there are limited circumstances where it is necessary to establish and maintain a reserve in an SMSF.

“The use of reserves beyond those limited circumstances, where it may be appropriate to do so, may be an indicator that they're being used as part of broader strategies to inappropriately circumvent the new caps and limits,” she warned.

The ATO, she said, will be issuing some new guidance about the limited circumstances in which it considers it to be appropriate for an SMSF to maintain a reserve.

“We have also analysed our SMSF data holdings to identify those SMSFs that are currently carrying large amounts in reserves, and we'll shortly be contacting those SMSFs and their advisers to understand the underlying circumstances of those reserves,” she said.

“We expect that in many cases, their reserves perhaps relate to old legacy pension products, that are no longer available on the market, but as I said it's an important area that we will be continuing to monitor closely.”

Wealthy clients in ATO's sights with reserves move
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Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.