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Winding Up Your SMSF

Towards retirement, individuals may consider switching from their self-managed super fund (SMSF) to a different type of super fund.

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Winding Up Your SMSF
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Written by

BERIVAN DUBIER
Last Updated Jun 1, 2021
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There are 2 key reasons why an SMSF fund may not be ideal towards and during retirement:

  • SMSF funds are time-consuming and require the trustee to regularly stay updated with the market and implement any changes to investment themselves. For some, this may be stress-inducing and contrary to the relaxation they desire during retirement.
  • SMSF funds have ongoing costs which do not apply to other types of super funds. Although these may be affordable when one is working, they may no longer be feasible during retirement.
    You may choose to wind up your SMSF if the above reasons particularly resonate with your circumstances. Remember that once a fund has been wound up, it cannot be reactivated, so this decision is vital.

 

The first step in winding up your SMSF account is to complete any specific requirements set out in the trust deed pertaining to winding up the fund. You will then need to decide whether you want a payout or for the funds to be transferred to another super fund (you will need to choose and create the super fund account).

Regardless of whether you choose to pay out or transfer to another fund, you will need to leave a sufficient amount of funds in the SMSF to pay final taxes or expenses. Then, appoint an SMSF auditor who can conduct the final audit. You will need to complete and lodge the final SMSF annual returns and details about the wind up to the ATO.
Once you have paid any outstanding tax, settled liabilities and ensured that you have received requested refunds, you are able to close the fund’s bank account.

This process can get complicated depending on the relationship between trustees, therefore obtaining expert advice on the best route may be beneficial.

Helpful tip:

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Before winding up your SMSF, ensure all legal, tax, and reporting obligations have been completed. Keep records of the wind-up process and confirm all assets have been appropriately dealt with. Professional guidance can help avoid unnecessary delays or compliance issues.

BERIVAN DUBIER

DIRECTOR

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SEAN DWYER

DIRECTOR
CPA and financial adviser for over 25 years. Loves to help businesses grow. Dad, jogger, cyclist, windsurfer and bad skier.

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FAQ

When might it make sense to wind up an SMSF?
You may decide that the time, cost and trustee responsibilities of running an SMSF no longer suit your circumstances. Changes in health, family arrangements, investment needs or the ability of trustees to manage the fund can also prompt a review. Consider where each member’s benefits will go and obtain advice on the tax and retirement implications before acting.
Can an SMSF be reopened after it is wound up?
No. Once the fund has been wound up, it cannot be reactivated. Before starting, check the trust deed, agree on an exit plan with all trustees and document the decision in signed meeting minutes. The plan should cover each member’s benefits, investments, liabilities, final costs and record keeping.
Can members take their super as cash when the SMSF closes?
Only if the member has met a condition of release and the payment complies with super law and the trust deed. Otherwise, the member’s benefits generally need to be rolled over to another complying super fund. Winding up the SMSF itself does not give members early access to their super. Check the tax consequences before making a benefit payment.
What happens to the SMSF’s investments and property?
Trustees must dispose of or transfer the assets in accordance with the trust deed and super law, allowing time for less liquid assets such as property. Keep evidence of market value and the transaction details. Selling or transferring assets may have capital gains tax and, for property, stamp duty implications, so work through these before arranging a transfer to a member or another fund.
What if the SMSF is paying a pension?
A pension being paid by the SMSF must be ended before the fund is wound up. Check the minimum pension payment required before a full commutation, and report the commutation through a transfer balance account report where required. Prompt reporting is particularly important if the member will start a new pension in another fund, to avoid an apparent overlap in the ATO’s records.
Should all the money be rolled over before the final SMSF return?
Plan for final bills, tax and any refund. The ATO generally recommends rolling over most benefits before lodging the final SMSF annual return, then transferring any remaining balance after final tax liabilities are paid or refunds received. Complete the final rollover within 28 days of lodging the final return. A final rollover should occur only after liabilities are settled and money owed to the fund is received.
Is a final audit and annual return still required?
Yes. An approved SMSF auditor must complete the final audit before the final SMSF annual return is lodged. Lodge any outstanding returns as well, and mark the final return with the wind-up details. Other reporting may apply, including transfer balance account, PAYG withholding or activity statement obligations, depending on the fund’s transactions.
When can we close the bank account and cancel the ABN?
Keep the SMSF bank account open until final expenses and tax are paid, refunds have arrived and all remaining benefits have been dealt with. The ATO cancels the fund’s ABN after processing the final return and confirming obligations are met; trustees should not cancel it themselves. Notify employers and relevant service providers, arrange for records to be retained, and consider whether a trustee company used solely for the SMSF should be deregistered separately with ASIC.

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