Advantages

1.    Significant tax deduction that can be claimed by the Self Managed Superannuation Fund (SMSF);

2.    Tax savings available to remaining members of the fund;

3.    Future capital gains tax events can beminimisedif not eliminated;

4.    Increase the lump sum received by the beneficiaries;

Disadvantages

1.    Reserves must be in place prior to the payment of the payment as it can not be made from member's balances;

2.    The reserve will typically need to be established and contributed to over many years;

3.    If the SMSF is in pension phase, any income generated by the reserves will be taxed at 15%, i.e., they won?t be eligible for the tax free concessions.

References

Section 295 - 485 Income Tax Assessment Act 1997 (ITAA 1997)

Section 295 - 385 (3) ITAA 1997

ATO Interpretative Decision 2012/10