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Members of a SMSF each contributed $50k during the 2020 financial year (contributions received June 2020). The Accountant allocated $25k each to their member account and the balance to a reserve. The $50k in reserve has since been allocated to their member account in July 2020 - $25k each. Are there any issues with the members contributing $27,500 each this current financial year to be allocated to a reserve, then transferred to their member account in July?
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Hi Faye
Yes as an example a person could have contributed $25,000 on 1/6/2021 as a personal taxable contribution & then on 28/6/2021 made another personal taxable contribution of $27,500 that is put in a contribution reserve (to be allocated by 28 July 2021).
The person could claim both contributions as a personal deduction in 2020/21 assuming they have sufficient personal income & that they have followed the rules. The contribution is taxable in the year it is received by the Fund.
Contributions are only counted towards the cap in the year they are allocated which would be $25,000 in the 2020/21 year and $27,500 in the 2021/22 year using the above example.
If a client has entered into a reserve strategy ideally they should have received advice in relation to the transaction as it is essential that the rules are followed and the required paperwork is correctly prepared.
Thanks
SMSF AAA