It is a requirement from the ATO that an SMSF must prepare a set of Financial Statements and lodge an Income Tax Return every financial year. If we are your SMSF Accountant, we will lodge the required annual return.

Allocation of Income

We use the daily weighted average balance method to allocate the SMSF net earnings generated during the year to the Members in the Fund.

Daily Weighted Average Balance Method

Members will have different balances in the SMSF. Using this method ensures the Member with the higher balance receives a bigger portion of the Fund’s earning. This method adds the total amount allocated to the Member accounts for the year by placing a weighting on each dollar based on the transaction dates.

Legislation or Rulings

It is worth noting that there is no legislative requirement on a specific method an SMSF must use for income allocation to Members. As per the SIS Act, the only requirement in distributing income to SMSF Members is to use a fair and equitable manner. It is Trustees’ discretion on how to allocate net earnings to the Fund’s Members. For more information on the legislative framework for this matter, please click the button below.

Example

We use the daily weighted average balance method to allocate the income to the Fund’s Members. For example, if your Member balance consists of 30% of the Fund and the net income for the year is $60,000, your share of the net income is $18,000 (30% x $60,000).

Special considerations where a pension is in existence

If your Fund is partially in pension and accumulation phases, the SMSF will need an Actuarial Certificate to determine the exempted current pension income.

Reserving strategy

Reserving method is the allocation of contributions or SMSF earnings into a suspense account on Balance Sheet instead of intended Members’ account at the year end. The aim of this strategy is to temporarily reduce the actual Member balance for some personal purposes or to claim more personal tax deduction for concessional contribution.

Superannuation Warehouse do not apply this method for our accounting service as in some circumstances it might not be a fair and equitable approach.

However, for contribution reserving, since it is subject to contribution caps and required lodgement to the ATO , we will follow Trustees’ provided instructions to complete the account.

In short, the reserved concessional contributions are SMSF assessable income in the receiving year. The Members can claim their personal tax deduction in the same year. However, the reserved contribution will count towards the contribution cap in the following financial year.

For more info on non-concessional contribution reserving, please click here.

For accounting requirement, we will allocate the contribution to intended Member before July 28 of the next financial year to maintain the SMSF compliance.

With Superannuation Warehouse as the Accountant and the Administrator of your SMSF, the accountingtax and audit services for your Fund are all taken care of. For more information on our services, please visit our administration page here.

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