Self-managed superannuation fund (SMSF) trustees looking to set up and utilise reserves within their funds cannot rely on a general investment strategy for effective compliance, according to SMSF Strategies principal Grant Abbott.
Abbott said proper compliance with the SIS (Superannuation Industry Supervision) Act is needed in this area.
“Reserves must have a separate investment strategy and the basis of this investment strategy is that they are going to be prudentially managed with regard to the underlying investment strategy of the fund,” Abbott told delegates at the SMSF Strategy Day in Adelaide yesterday.
“So you will need to set up a separate investment strategy for reserves,” he said.
Other aspects of the reserves being used, such as how the reserve will be set up, when it will be set up, and for what purpose the reserves will be used will be determined by the SMSF trust deed.
However, in general, SMSF trust deeds tend to be silent or strategically very poor when addressing this area, Abbott said.
SMSF reserves are surplus assets of the fund that have been set aside into an account that is not specifically for the use or benefit of any member.
The types of reserves that can be set up include a general reserve account that allows a trustee to allocate the earnings of the SMSF, an expense reserve account that allows the trustee to pay general and specific expenses of the fund, and a contributions reserve account that allows for the short-term holding of fund contributions for no more than 28 days.
