Issue

How to reverse Contribution Reserve/Unallocated Contribution amounts for first-year loaded funds only where the contribution reserve was created outside of Class. .

If the contribution reserve is done in Class, the allocation of the contribution should happen automatically in Class for year two.

Contribution reserves (also known as unallocated contributions) based on SMSFRB 2018/1, are considered by the ATO as suspense accounts and therefore not reserves for the purposes of the SISA and SISR. It is recommended to create them as custom holding accounts, rather than reserves in Class.

If the contribution reserve is set up as a reserve account at load opening balances refer to instructions  in Contribution Reserve is set up as a Reserve Account at Load Opening Balance on how to reverse the amount.

Resolution

To reverse the contribution reserve (unallocated contribution) amount for the first year loaded fund:

1. Create reversal of unallocated contribution income account
2. Reverse the contribution reserve amount
3. Process reverse of unallocated contribution income amount and override the allocation to a specific member
4. Match transactions from step 2 with step 3
5. Adjust the contribution cap information to reflect the allocated contribution in Class

Create reversal of unallocated contribution income account

Navigate to Business Level > Settings > Fund Income. 

1. Click on the Classification Type drop-down box and select Fund Income
2. Click on the Category Type drop-down box and select Fund Income
3. Click on Add New Income Expense Type
   
   
   
   
4. Complete the Maintain Income Expense Type fields, as the following example 
   
   
   
   
5. Click Save 

Reverse the contribution reserve amount

The initial contribution reserve/ unallocated contribution should be set up within the fund as a Custom Holding Account at Load Opening Balances as per the screenshot below. 

Navigate to Fund Level > Transactions >Browse Bank Statements

1. Select the Contribution Reserve/ Unallocated Contribution Account
2. Click on the Add 
3. Enter a Cash In amount to reverse the amount and reduce the balance to nil.

In this example, $8,500 is the unallocated contribution (concessional).

Process reverse of unallocated contribution income amount and override the allocation to a specific member 

Navigate to Fund Level > Transactions > Fund Income > Fund General Income 

1. Complete  all fields as per the screenshot below
   
   
   

It is recommended the date of reversal is set on 1 July of the current financial year. The Allocate To field needs to be overwritten to the particular member, who has adopted this Contribution Reserving Strategy. 

Match off Transactions

Match the debit to reverse the contribution reserve entered in step 2 (Reverse the contribution reserve amount) with the credit from the business event income processed in step 3 (Process a Fund Income > Reverse Unallocated Contribution).

Adjust the contribution cap for the allocated contribution

As the contribution reserve was created outside of Class, the allocated contribution amount will not automatically flow through to the member's contribution cap or be reflected on the member statement as contributions in year two.

To adjust the concessional or non-concessional contribution cap in Class so the amount will be counted towards the member's contribution cap in year two, you may use the 'Contributions made (to other funds)' field to record the allocated contribution manually as a workaround.

Navigate to Fund Level > Members > Contribution Caps

1. Select the financial year from the drop-down box
2. Select the member
3. Click on Edit
4. Record the amount
5. Click Submit 

Example for the concessional contribution

Further information

In this example, $8,500 needs to be grossed up by times 1.17647 = $10,000 as per Sub-regulation 292-25.01(6) of the Income Tax Assessment Regulations 1997 and report in the SMSF Annual Return > Section F: Member Information > Label K: Transfer from Reserve: Assessable amount.

If the contribution reserve relates to the non-concessional contribution, then no grossing up is required, the whole amount will be Transfer from reserve: non-assessable amount.

The Allocated earnings or losses (Label O) for the same member needs to be reduced by $10,000, so this adjustment does not affect Closing Account Balance for the member.  

Use a Contribution Reserve Strategy for the current financial year

If you would like to use a Contribution Reserving Strategy for the current financial year, Class has the functionality to defer the allocation of the contributions made in the month of June, see Member Contributions for more details.