There will in all likelihood come a time when you will need to wind up your self-managed superannuation fund (SMSF). The reasons for winding up are many and varied but could include:
- there are no members left – they may have passed away or rolled benefits into other funds
- there are no assets left – the SMSF may have paid members all of their benefits
- divorce – a marriage breakdown may force husband and wife members to split the fund’s assets and may affect the ability of members to effectively undertake their trustee obligations
- insufficient funds – there is not enough money in the fund to keep covering running costs
- relocation overseas – one or more members move to another country, rendering the SMSF unable to satisfy the definition of being an “Australian superannuation fund”
- old age – trustees’ circumstances may have changed in a way that has affected their capacity to effectively manage an SMSF, which can be complex and constantly requires a significant investment of time and expertise
- death – where there is only one member, their legal personal representative will be required to pay out all benefits as per the trust deed or death benefit nomination. Where there is more than one member, other members may not wish to continue the fund.
Once the decision to wind up an SMSF has been made it is always a good idea to sit down and read your trust deed, as it may contain vital information about winding up your fund. And remember, once a fund is wound up, it cannot be reactivated.
Do: Notify the Tax Office within 28 days
You need to let the Tax Office know within 28 days of the fund being wound up. You can ask this office to help you do it in writing, but you must ensure to include:
- the name of your SMSF
- its Australian business number (ABN)
- your name and contact details, and
- the date you wound up your SMSF.
Do: Deal with member benefits
You need to make sure that:
- you deal with members’ benefits according to the superannuation law and the trust deed
- you obtain market value balances of all related accounts
- you ensure all SMSF assets have been sold and member contributions dealt with in accordance with the trust deed and superannuation laws
- you ensure all proper steps are taken to transfer ownership and title of any assets
- you decide whether any corporate trustees in your fund wish to deregister with the Australian Securities and Investments Commission (ASIC), and
- your fund has no assets left once it has been wound up.
But remember, if you have wound up your fund but you, as a member, have not met a condition of release – retirement, transition to retirement, or reaching an eligible age – you cannot access your superannuation. Your superannuation needs to be rolled over into another regulated superannuation fund. Remember, there are serious legal penalties for accessing your superannuation benefits before you are legally allowed.
Seek advice from this office on the potential capital gains tax (CGT) implications for your SMSF on the disposal of assets to enable the payment of benefits or the rollover of benefits to another fund.
Do: Arrange a final audit of your fund
When winding up your fund, you will need to have an audit completed by an approved SMSF auditor before you can lodge your final SMSF annual return. Talk to this office.
Do: Complete your reporting responsibilities
When preparing and lodging your annual return, you need to complete all labels in relation to “Was the fund wound up during the income year?”(item 9). You must also pay any outstanding tax liabilities at this time and lodge any outstanding returns from previous years. This office can assist you in these matters.
It is important to wind up your fund correctly. If you fail to carry out these reporting responsibilities, you may be the focus of compliance activities and you may be subject to penalties. After meeting all of your tax responsibilities, the Tax Office will send you a confirmation letter stating that it has cancelled your SMSF’s ABN and closed your SMSF’s record on its systems.
Don’t: Cancel the fund’s ABN. The Tax Office will do this once it has been notified of the intention to wind-up the SMSF. It will then send the trustee written confirmation that the ABN has been cancelled.
Don’t: Walk away completely. The fact that you have lodged a final SMSF annual return and reported wind up information may not be the last contact you will have with the Tax Office. You need to finalise all lodgement and payment obligations before you can wind up.
Don’t: Dispose of any paperwork. A lot of your records will need to be kept for several years, and some even up to 10 years.
Don’t: Close the bank account. Keep the SMSF’s bank account open until all expected final liabilities have been settled and requested refunds are received. Tax liabilities (including the final SMSF levy) can be prepaid or paid with lodgement of the SMSF annual return. Also, once a bank account for an SMSF has been closed, a new one cannot be opened without first producing a new trust deed.