Issue

Since the ATO released Request to Adjust Concessional Contributions on 31 July 2015 (revised web content on 6 October 2015), Class has become aware of the new SMSF Annual Return reporting requirements for anyone who used the contribution reserving / unallocated contribution strategy.

Below is a summary advice received from the ATO, which is consistent with the example they provided in instruction for Request to Adjust Concessional Contributions.

Concessional Contribution 

An SMSF must report to the ATO in the SAR all contributions for the financial year in which they were made to the fund, not in the year they were later allocated to the member's account.

Year one of the strategy - the financial year in which the contributions are made

All assessable employer contributions and assessable personal contributions, including those amounts unallocated as at the 30 June or allocated to a contribution reserve, should be reported by an SMSF in the Annual Return according to the following instructions:

• In Section B (Income) at Item 11 Label R1 (Assessable employer contributions) or Label B (Assessable personal contributions)
• In Section F (Member Information) at Label A (Employer contributions) or Label B (Personal contributions) and Label S (Closing account balance).
• In Section H (Assets and Liabilities) at Item 16 Label W (Total member closing account balances).

The SMSF should not report this amount at Label X (reserves) in order to ensure the various totals on the Annual Return can be reconciled.

Year two of the strategy - the financial year in which the contributions are allocated to the member's account

The SMSF should not report any employer or personal contributions in the Annual Return.

Non-Concessional Contribution 

The ATO's advice in relation to non-concessional contributions is to treat them exactly the same as concessional contributions for Annual Return reporting.

Report everything in year one only, then lodge a written request to allocate part of the non-concessional contribution to the following year.

There is no prescribed ATO form for non-concessional contributions.

What Class has Implemented 

Based on the information released by the ATO, Class has made the following changes to the reporting of Contribution Reserving / Unallocated Contribution strategy through the following:

• The change only impacts funds lodging the Annual Return for 2015 FY onwards as all 2014 FY or prior year annual returns should already be lodged.
• Change the Annual Return mapping for 2 years, and report everything as if it is "in breach" of the Contribution Cap for year 1 only. There is no additional reporting for the Annual Return in year 2. Section F/G Member balances will report everything as if the contributions are fully allocated in the year it was received.
• "Unallocated Contribution Account (Liability)" no longer forms part of "Other Liabilities" and "Prepaid Contribution Tax (Asset)" no longer forms part of "Other Assets" in the Annual Return Section H: Assets and Liabilities. 
• A new form "Request to adjust concessional contribution" will be automatically created for contribution reserving strategies for concessional contributions - this form can be printed and lodged to the ATO via paper. 
• Keep existing accounting / member statement reporting treatment for both concessional and non-concessional contributions. This means there is no impact on contribution cap reporting, member statement, financial statement, fund dashboard or client view. They will continue to display the correct information.
• Best practice is to create a contribution reserving minute for each year which includes a reconciliation between the member statement and the annual return.

Refer to KB article Example of Contribution Reserve and Request to Adjust Concessional Contribution (from 2015 FY onwards) for an illustrative example.