Having worked with clients and their accountants or administrators over the last few years to close some SMSFs, I thought an article on the winding up of an SMSF would be appropriate as many of the initial SMSF owners enter their 80’s and consider their options. 
Winding up an SMSF is a process whereby you transfer to another fund or liquidate all assets left in the fund and pay them to the beneficiaries after costs, prepare all the final accounts for ATO reporting and administrative requirements and advise the ATO of your decision. You do need to consider your trust deed and follow a process to make sure that if you are winding up your SMSF, you complete all the tasks laid out by the deed and required by the ATO.
Whilst the practical reality is that your accountant or SMSF administrator will take care of most of this for you, it is important that you are aware of and understand what is involved as you are ultimately responsible.
There are a few reasons why trustees may wish to wind up their SMSF:
Winding up an SMSF may occur for a number of reasons:
- The health of a member/trustee starts to deteriorate and if they are the main driver of the fund as this may result in an inability to run the fund in the future or;
- Many people just get tired of the paperwork, responsibility and ongoing burden of managing your SMSF.
- In the last few years we are seeing those first people who set up a SMSF decades ago have reached a point where the fund’s assets have reduced to a level such that it is no longer cost-effective to run the fund. Remember in your 80’s the minimum pension rises from 7-9% over the decade and 11% at 90.
- A member has moved overseas for work or leisure and become a non-resident for Australian taxation purposes.
- All the members and trustees have left the SMSF (for example, they may have transferred their benefits to another fund or have passed away).
- Where the members are divorcing and neither wishes to retain the SMSF fund for one reason or another.
What you need to do
Winding up your SMSF will require careful management of a number of tasks. If your SMSF is not wound up correctly it is possible it will remain open, which may lead to additional payments for required financial statements, fund audits, and the lodgement of the annual return.
These tips outline some of the key considerations and tasks involved in winding up an SMSF. Please note this is not a comprehensive list and professional advice should be sought to cater for your personal situation.
- Check the trust deed – The first place to turn should be the SMSF trust deed, as this may contain certain requirements regarding the wind-up process.
- Obtain written agreement – To ensure all parties are properly informed and to avoid unnecessary complications, each trustee/member should sign an agreement to close the fund. In the case of a corporate trustee, the directors must decide whether the company should remain running or be wound up.
- Verify with members how they would like existing benefits paid – Each member must notify how and where they want their benefits to be paid, specifically whether they want their benefits to be rolled over to another super fund or paid out (as a lump sum of cash or in-specie transfer of assets via an Off-market transfer).
- Prior year’s tax and compliance obligations – Ensure all prior year financial statements, tax returns and other tax and compliance obligations have been finalised.
- Notify the ATO
You need to notify the ATO in writing within 28 days of the fund being wound up, with the following details:
– the name and ABN of your SMSF
– the date your SMSF was wound up
– a contact person, with contact details such as name, phone number, email etc.
- Either payout or rollover member benefits
The wind up of a SMSF means that there will be no assets left in the fund. To move these assets out, you need to comply with both the SIS laws and your trust deed. This generally means paying out lump sums to members( cash or in-specie transfer of assets via an Off-market transfer), provided they can satisfy a condition of release, or rolling over the members benefits to another complying superannuation fund (usually either a retail fund or industry fund). If you are rolling benefits over to another super fund, there are two ATO forms for completion:- Request to transfer whole balance of superannuation benefits between funds(NAT 71223) – Members of your SMSF use this form to request the transfer of the whole of their benefits to another super fund.
- Rollover benefits statement (NAT 70944) – If you rollover benefits to another fund, you need to complete this form as a trustee. You keep a copy, and send a copy to the new super fund that the members’ balances are being transferred to.
- If any members are eligible (and have received) their benefits as a lump sum payment, you will need to complete the form ETP payment summary – superannuation fund (NAT 2606).
- A PAYG payment summary – superannuation income stream (NAT 70987) needs to be completed if a pension payment was paid to a member and tax was withheld.
Note also that where you are selling assets so you can pay out benefits or roll over benefits to another fund, there may be capital gains tax issues.
- Arrange for a final audit and the final SMSF annual return – Arrange the audit and the fund should then lodge its final annual return with the ATO ensuring they complete the relevant section of the annual return that indicates that the fund is being wound up during the income year and finalising any outstanding tax liabilities at that time.
- Receive confirmation from the ATO that your SMSF has been would up
If everything has been done correctly, the ATO will send you a letter stating that they have cancelled your SMSFs ABN, and closed your SMSF records on their system.
- Close your SMSF bank account(s) – Only AFTER you have received the ATO confirmation letter should you close your SMSF bank accounts. In some cases the SMSF will be entitled to receive a tax refund from the ATO upon completion of their final annual return. In this situation a bank account should be kept open to receive this refund . Alternatively, if the clients have met a condition of release then close the bank account and have the refund paid to an accountant’s trust account or to the clients’ account in trust and treat as a final commutation.
- Post wind up expenses – Certain expenses may not fall due until after the SMSF is due to be wound up. Rather than keep the SMSF running and delaying the wind up process, the SMSF can be closed and the some cash can be retained on trust by the former trustees until the liability is paid.
The ATO also has a good online reference guide for winding up a SMSF at https://www.ato.gov.au/Super/Self-managed-super-funds/Winding-up/
Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 9899 3693, Mobile: 0413 936 299
- PO Box 6002 NORWEST NSW 2153
- Suite 40, 8 Victoria Ave, Castle Hill NSW 2154
- Suite 4, 1 Dight St., Windsor NSW 2756
Corporate Authorised Representative of Viridian Advisory Pty Ltd ABN 34 605 438 042, AFSL 476223
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
The SMSF Coach 