Using a contributions reserve and careful timing of tax payments are two strategies that advisers can deploy to help clients effectively manage their SMSFs, according to Cooper Partners principal Jemma Sanderson.
Speaking at the Self-Managed Superannuation Fund Professionals’ Association of Australia national conference (SPAA), in Brisbane yesterday, she said: “Basically how [a contribution reserve] operates is, if a contribution is made to a super fund, it doesn’t have to be allocated to a member’s benefit until 28 days after the end of the month of the contribution.
“The benefit here is if a contribution is made in June of any financial year it doesn’t need to be allocated to the member’s account until 28 July. It’s in a new financial year, therefore its not going to count towards the cap until the following year.
“So you might contribute $100,000 from your business or as a self-employed person, churn it into your super fund in June – your contribution cap may be $50,000, but if you allocate $50,000 of that contribution in July, then you still get the deduction for the June year and you’re using two years’ worth of caps over that period.”
Given the 28-day window, it was best to deploy the strategy in June although the provisions did allow for the gap to be extended further. “If a contribution is made in March, for example, if you have the actual reasoning you could allocate it in July.
“Now I think you’re probably pushing the envelope a bit too far there. There is a specific 28-day carve-out there, so that’s probably the best option to use.”
She said a tax-timing strategy was very effective for clients on the highest marginal tax rate. “If somebody is receiving a bonus and they can salary sacrifice that particular bonus, or for people who are expecting a substantial capital gain, this sort of thing can be looked at.
“So instead of pay to go on the salary, you contribute the money into the super fund and there’s a timing benefit in terms of when the tax is actually paid on that super contribution.”
