Generally a public offer fund will operate a number of reserves, such as investment income smoothing and anti detriment reserves. But as a member of a public offer fund the contributions reserve may not be evident. Even if you aren’t a member of an SMSF, contribution reserving may benefit you at some time, therefore it is worth being aware of it.

Contributions reserves may be particularly handy on several occasions. For example, in a year when a large capital gain has been crystalised, a bonus is payable, or perhaps the last year of salary income before retirement. A contributions reserve can essentially allow access of up to two years concessional contributions limits in one year. However, as with all things taxation, timing is everything. If you know in advance of such events, it is all about planning to take advantage of an opportunity that potentially enables a large tax saving – legally!

The trustee of an SMSF may hold contributions in a reserve for up to 28 days. This means any contributions received after 2^nd June in any financial year may be allocated to a contributions reserve and then allocated to the member after the end of the financial year. Therefore the contribution is counted as a contribution for the member in the next financial year. This strategy does have its limitations as in the following year this reserved amount will be added to other contributions that will be received.

Some of the other types of reserves that can be used are listed below:

1. Fund Reserves may include investment earnings in order to smooth investment returns.
2. Contributions reserve to delay the reporting of the contribution for the member.
3. Anti-detriment Reserves
4. Self insurance reserves
5. Proceeds of insurance policies can be directed to a Fund Reserve

The essential thing to remember is that reserving can be achieved in an SMSF and Optima Partners have been able to assist a number of clients with effective reserving strategies.

Liz Gibbs

SMSF Manager – OPTIMA PARTNERS