Reserves in a superannuation fund can be regarded as monies which form part of the net assets of the fund and which have been set aside for a clearly stated purpose.

Before setting up a reserve account, trustees need to be mindful of the following requirements:

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A separate reserving strategy must be formulated (Section 52 and Reg 4.09). The strategy must be comprehensive, objective and measureable.

The reserving strategy should incorporate the following aspects:

  • Purpose of the reserve (e.g. anti-detriment, investment smoothing, maintenance of income stream or contribution allocation);
  • Identify a target reserve amount or range;
  • Determine a term over which the reserve target amount is to be achieved;
  • An investment strategy to identify how the target amount will be achieved e.g. investment in cash or shares; and
  • Periodic review to ensure the appropriateness of the reserve.

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Provided the fund’s trust deed allows, reserves can be created from the following:

  • By allocating a portion of the funds income;
  • From realised and unrealised growth;
  • Contributions (if contribution reserve); or
  • Insurance proceeds.

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No specific limitations have been placed within SISA or SISR unless as required by the deed.

However, guidance from SCR 1999/1 suggests reserve balance should be no more than 15% of opening balance of the fund assets.

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Reg 292-25.01 of Income Tax Assessment Regulation (ITAR) 1997 provides that amounts allocated from reserves will be counted as concessional contributions unless the allocation meets either one of the following two requirements:

  • The amount allocated is on a “fair and reasonable” basis (allocated to each account within the fund and allocated amount less than 5% of member’s interest at the time of allocation); or
  • The amount allocated is used to discharge income stream liabilities.

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  • If members’ account is in accumulation, the allocated amount will increase the taxable component, unless it is a non-concessional contribution.
  • If members’ account is in pension, the allocated amount will be applied proportionately in accordance with the tax free percentage of the account.

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