What’s Involved with Winding Up an SMSF?

If the recent market conditions or just the amount of administration involved is making you rethink having an SMSF as your retirement vehicle, there are several things you will need to be aware of. Winding up an SMSF is not a simple process. It requires the trustee to understand the terms set out in the trust deed, dispose of the fund’s assets, and finalise compliance obligations, among other things. In some complex cases, it may be prudent to seek professional advice from your superannuation and tax accountants in Melbourne.

The Steps for Winding Up an SMSF

For most SMSFs, the first step in a winding up is to find out what the fund’s trust deed requires in that event. For example, the trust deed may require that all the assets of the fund be sold, or all ownership transferred to members. Both call for different courses of action by the trustee and have different costs related to them.

Trustees are then required to organise a meeting to ensure that all trustees agree with the winding up decision. This should be documented in the form of meeting minutes and a record kept. Each trustee should also sign the winding up agreement to avoid any potential future disputes over the decision.

Whether the SMSF’s trust deed requires the sale or transfer of assets, the ATO notes that liquidity of assets, including the time required to sell them, and capital gains tax and stamp duty implications should be considered by the trustees. In addition, decisions as to how, when and how much assets should be sold for should be documented.

The next step in winding up the SMSF is to finalise outstanding tax and compliance obligations, including:

• lodging a transfer balance account report (TBAR) upon ceasing a member income stream (pension);
• issuing various PAYG summary, PAYG withholding payment summary, and/or PAYG withholding payment summary annual reports; and
• meeting any PAYG instalment, GST and BAS obligations.

Final invoices and expenses due to assets sales and outstanding tax liabilities will then need to be paid before the calculation and distribution of member benefits. In instances where a member meets a condition of release, their benefits can either be paid out in cash or rolled over into another complying super fund. Where a condition of release is not met, the member benefit must be rolled over into another complying super fund.

Finally, after member benefits have been distributed, the trustee will need to ensure the SMSF has been audited every year since its establishment and complete one final audit. Once that is complete, the final SMSF annual return can be lodged. The ATO will then confirm through a letter that the SMSF has been wound up, proceed to close the SMSF records on its system, and cancel any associated ABNs.

Do You Have an Exit Plan?

While loss incurring investments causing the SMSF to be unable to meet ongoing administrative costs could be one of the main driving factors in winding up an SMSF, that is by no means the only factor. Even if you are the trustee of an SMSF with top performing investments, an exit plan should still be a priority. This protects against a multitude of factors such as a change in personal circumstances of trustees (i.e. failing health or permanent incapacity), disputes between trustees, or where all members have left the SMSF (either through rollover or death).

Want to Find Out More?

If you would like to find out more about winding up an SMSF, we encourage readers to get in touch with us. We can also help if you’re thinking of starting up a new digital business, launching a new financial product or service, or looking for trusted business tax services in Melbourne.