With 30 June rapidly approaching, we are now in the zone for contribution reserves coming to life. Utilising these reserves at this time of year can be a valuable strategy if you have abnormal gains or higher than normal income this year, or incorrectly calculate your contributions for the year.
Firstly be sure that your trust deed allows the use of them, then take the time to correctly document any decisions around the use of them.
Any contributions made during June can be allocated to a Contribution Reserve and not allocated until next financial year. You have until 28 days after the end of the month the contribution was made to actually allocate them to a member account which is why the month of June brings these to life.
If a member makes a contribution during June and inadvertently breaches their cap, there is the possibility that the contribution made in June can be held in a Contribution Reserve and not allocated in this financial year, therefore being removed from the members contribution cap. This contribution needs to be allocated prior to 28 July and then gets counted towards next years cap for the member. A very handle tool for managing contribution caps.
Secondly they can also be used to increase concessional cap deductions this financial year to reduce a members personal capital gain or the like, and a portion not allocated to the member until July and therefore counting towards next years cap.
Great strategy to understand and make use of however be mindful of reduction in next years caps and be sure to get your documentation right.