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There are many reasons you might decide a self-managed super fund (SMSF) is no longer for you or your family and fellow trustees.
It could be the result of a divorce, perhaps a member has passed away, or maybe the administration has become a burden. So you’ve decided to close down the fund and move your super to an Australian Prudential Regulation Authority (APRA) – regulated super fund.
Whatever the reason, you need to be aware of the costs involved in winding up your SMSF. These costs will vary from fund to fund, depending on the circumstances of each of the members.
“Most wind-ups include accounting fees, costs of the fund’s final returns with the ATO, winding up the trustee company, capital gains tax issues, transfer or sale costs of fund investments, minutes and resolutions of the winding up, and the cost of retaining documents after the fund has been wound up (these need to be kept for up to ten years),” SuperConcepts executive manager, SMSF technical and private wealth, Graeme Colley says.
You can find out more on the steps you need to follow to wind up an SMSF in SuperGuide article How to wind up an SMSF. In this article, we look into how much the process might cost you.
Accounting fees and final returns
Many of the costs involved in a wind-up are similar to the annual costs you’d incur for administering your SMSF. However, you should expect an additional cost for final returns and the final audit as there will be more work involved in a wind-up for your auditor.
To keep costs down, you could complete your final tax return yourself by filling out Question 9 – Was the fund wound up during the income year? – in Section A. However, you will not be able to audit the fund yourself and need to pay a third party to do so (just like your regular audit).
According to the RiceWarner Cost of Operating SMSFs 2020 report, annual audit costs for SMSFs range from $350 to $639. As the auditor will also be calculating the potential costs and capital gains tax of the divestment of assets, expect the cost of the audit to be closer to $639 and potentially even more.
If you decide to complete the final tax return yourself, you also need to complete Question M – Supervisory levy adjustment for wound up funds – in Section D to have the supervisory levy adjusted for your fund. As this is paid in advance you may have some reimbursement that could cover some of your other costs.
If you don’t complete the fund’s final tax return yourself, which needs to be done after the fund has been audited, expect to pay on the higher side of the range in the RiceWarner report of $525 to $1,500 for preparing financial statements and tax returns.
Asset transaction costs and capital gains tax
Depending on the assets in your SMSF, you will most likely need to divest investments in order to roll them over to another fund. Any sale of assets will incur transaction costs – for example with shares, the transaction cost would be the trading costs of the sale. For a property sale, there would be the agent’s fees and the legal fees of divesting a mortgage if there was still a loan over the property.
In some instances, it may be possible to transfer assets in specie. This might occur, for example, if the fund is being wound up because the last member has died, and the assets have been bequeathed to a dependant.
Whether or not you actually sell an asset or transfer it, it will become a capital gains tax event and capital gains tax could be payable. If there are capital losses these will become void and of no use once the fund is wound up.
Transaction costs of asset sales are very hard to estimate because they depend entirely on the assets in the fund being wound up. As a very rough guide, an SMSF held entirely in a portfolio of 15 listed equities, plus five listed exchange traded funds, could incur transaction costs of $30 to $50 on each trade – which would be a total of $600 to $1,000.
Capital gains in an SMSF are treated as income for tax purposes and are taxed at the same rate as other income in the fund of 15%. If an asset is held for more than 12 months any capital gain is eligible for a discount of one third.
Minutes and resolution of wind up and cost of retaining documents
Just like any major decision in an SMSF, you need to make a note of it and have all members agree in writing. A resolution to close the fund needs to be made, also in writing. You can do these things yourself or have someone draft a resolution for you for a few hundred dollars.
Even after the fund has been closed you still need to keep some SMSF documents for ten years. There could be a small cost involved in doing that if you decide to keep documents with your accountant or solicitor.
Also remember that once an SMSF is wound up it can’t be reactivated. You can establish a new one but of course there would be new establishment costs involved in doing so.
The final year costs for an SMSF will not be dissimilar to what is required for operation of the fund, according to the RiceWarner Costs of Operating SMSFs 2020 report. And that report puts annual compliance administration costs for an SMSF in a range from $1,189 up to $2,738. But don’t forget, if you have a large SMSF with lots of different types of investments, the expense of selling those assets could substantially increase those figures.