Scott receives a $10,000 allocation from a reserve but no allocation is made to Bec. Although this represents less than 5 per cent of Scott’s account balance it may not meet the requirement to be a “fair and reasonable allocation”. If not, it will be deemed to be a concessional contribution and count against Scott’s concessional contribution cap. Assuming his other concessional contributions for the year are $30,000 he will still be under the cap and he will not create an excess contribution.
Tips:
1. Limit allocations from reserves to less than 5 per cent of each member’s account if you wish to avoid the potential for an excess contribution.
2. The 5 per cent limit applies to each reserve. So building money across several reserves may help to increase allocations. This should be weighed up against the cost and administrative obligations of maintaining a number of reserves.
Louise Biti is a Director of Strategy Steps, an independent company providing strategy support to financial planners. For more information visit www.strategysteps.com.au
