One of the main advantages of having your superannuation savings invested in a self-managed super fund (SMSF) is having access to an enormous repertoire of strategies that can be applied to maximise the value of your fund. Generally, such strategies cannot be used if your superannuation is invested in other types of super funds such as industry and retail funds.

From 1 July 2012, all working Australians up to 75 years old are able to contribute a maximum of $25,000 pa to superannuation as a concessional contribution.

Concessional contributions generally include employer (SG), salary sacrifice and tax deductible (if you are self-employed) contributions. If you exceed the $25,000 annual limit the ATO can apply penalty tax of up to 93% on the excess contribution. Prior to 1 July you could contribute $50,000 pa if you were aged 50 or over (i.e. the limit has been reduced by 50% for those aged 50 or more).

As you get nearer to retirement, contributions to superannuation become more attractive as you are closer to obtaining access to the generous tax treatment of super when you cease work. However, many people are not able to get as many funds as they’d like into super due to the recently reduced $25,000 pa limit.

If you have a SMSF however, you can employ a strategy that effectively allows you to contribute $50,000 as a concessional contribution in one year.

This can be achieved through the use of a contributions reserve. A contributions reserve allows you to ‘park’ a contribution in a separate account in your SMSF for up to 28 days before it must be allocated to fund members (i.e. contributions are otherwise allocated to members immediately upon receipt of the fund).

For example, you might arrange to salary sacrifice some of your income to your SMSF to take full advantage of the $25,000 limit over the course of the year, and then arrange for your employer to contribute an additional $25,000 (as a lump sum payment) in mid-June. The $25,000 lump sum is deposited into your SMSF’s reserve account and is allocated to you (or other members of your fund) within 28 days.

The $25,000 lump sum is not counted as a fund contribution for the purposes of the contribution limit until it is allocated to fund members. As the allocation takes place in July, the contribution is therefore counted against your contribution limit for the following financial year. For tax purposes however, the lump sum is deemed to have been contributed in the current financial year.

So what is the benefit?

This strategy can assist greatly with tax planning in the current financial year.

For instance, if you know your income will be higher in this financial year than the next (e.g. you might be retiring in the following financial year, or have received a lump sum payment for long service leave or a bonus in the current financial year), the additional $25,000 contribution will reduce your assessable income for the year by the same amount. This could save you up to $11,250 in income tax in the current year.
Furthermore, if you realised a capital gain for the current year (e.g. from the sale of an investment property), the additional $25,000 contribution to your SMSF can be offset against the gain.

The ATO recently confirmed the legitimacy of this strategy in Interpretive Decision 2012/16 (ATO ID2012/16).

The use of a contributions reserve is an example of one of the many strategic possibilities available for SMSF’s.


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.