Beware Contribution Reserve Strategy – it can bite!

You may have heard, with the delay in the implementation of Superstream, about a contribution reserving strategy being considered by some advisers.  Morrows is aware of the strategy and suggest you speak with us asap if you are considering its use.  Here are the key points:

• Sub-regulation 7.08 (2) SISA requires that contributions must be allocated to a member’s account within 28 days after the month of receipt
• Contribution caps can be spread over two financial years, effectively doubling the cap, where a contribution is made in June, parked in a reserve until 28 July, then allocated to the member
• Delays in the introduction of Superstream, which effectively prevents this reserve strategy,  means that the strategy is still possible for the current financial year

HOWEVER

• Be aware that the ATO is onto the strategy!
• The strategy may not be useful for a single member fund
• The ability to contribute in year 2, if there is a higher marginal tax rate, is gone
• Employers obligation for SG may result in the client exceeding their caps in the second year and being personally liable for the excess tax at the client’s personal marginal tax rate
• Where professionals spruik this strategy rather than applying it in appropriate advice, they run the risk of it being seen as scheme promotion depending on the circumstances

As you can see, the strategy is not as easy as some might make it sound. For the most appropriate advice for your situation, speak to your Morrows advisor as soon as possible and maximise your superannuation position for 2013-14.