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There are many reasons why you might choose to wind up your self-managed superannuation fund (SMSF). Perhaps you’ve retired and you’re not taking a pension, you don’t have the time to manage it efficiently anymore, or a trustee might have passed away. Whatever the reason, just like starting an SMSF, there is a proper process to go through.
(If you’re still weighing up whether to wind up your SMSF or keep invested, this SuperGuide article looks at your options.)
You also can’t put an SMSF ‘on hold’. Once you’ve shut it down, you can’t flick a switch and start it up again.
If you have decided to wind up your SMSF, it’s important to understand exactly what you need to do before you start withdrawing all your funds. Your trustee responsibilities extend for the life of your SMSF and, if you don’t wind it up properly, you may incur fines and penalties.
Some of the steps for winding up an SMSF may seem self-explanatory and may have occurred to you already, but some may not. To make sure you cover all bases, read through these six steps thoroughly.
Step 1
Like all things important for your SMSF, you need to get the consent of all the members of the fund in writing at a trustee meeting. A resolution must be made and all members must agree to it. The resolution should be minuted and signed by all members.
The sample resolution below was provided by Graeme Colley, executive manager, SMSF technical and private wealth at SuperConcepts. He says minutes from a trustee meeting convened to close a fund might look like this:
You must also notify the Australian Taxation Office (ATO) that the fund will be wound up within 28 days of the decision being made.
Step 2
Check your trust deed. It may outline how your SMSF needs to be wound up and the specific steps you need to complete. It can offer a helpful guide to the processes that must be followed to close your particular SMSF.
Step 3
Determine what to do with member benefits. Your SMSF can only be closed when it has zero funds, so all existing monies need to be paid out to members or rolled over to another super fund.
| Date of birth | Preservation age (years) |
|---|---|
| Before 1 July 1960 | 55 |
| 1 July 1960 – 30 June 1961 | 56 |
| 1 July 1961 – 30 June 1962 | 57 |
| 1 July 1962 – 30 June 1963 | 58 |
| 1 July 1963 – 30 June 1964 | 59 |
| After 30 June 1964 | 60 |
SMSFs are also required to report events that may affect their members’ transfer balance accounts. Commuting, or paying out, a pension to a retired member would constitute a transfer balance event that would need to be reported by the SMSF. (For a refresher on transfer balance accounts and transfer balance events read our article here.)
These are all things that need to be considered when members make decisions about what to do with their assets upon wind up. Once they (and you) have had time to consider all options, clarify with them what they would like done with their member benefits.
Step 4
Once you decide what to do with member benefits, funds can be paid out.
If members are still in accumulation phase, they need to rollover their funds into another super fund. This can be any kind of super fund – such as industry and retail funds – and doesn’t need to be another SMSF.
To roll funds from your SMSF into a new super fund, you must use SuperStream.
If SMSF assets need to be sold to fund member benefit payouts, this may incur capital gains tax. Illiquid assets such as property may take some time to sell so members will need to understand there may be a delay before they can access their super as a lump sum or rolled into a new fund.
Enough funds need to be left in the SMSF’s accounts to pay any potential tax and other costs, such as auditor and accountant fees (see below).
Step 5
Appoint an auditor to complete a final audit for the fund before you lodge your final tax return. Like other audits of your fund, the auditor must be ASIC approved. You can check ASIC’s auditor register here.
The audit will help you finalise the fund’s tax obligations including capital gains tax and tax on any income received by the fund through investment returns or member contributions.
Once the audit is finalised you can lodge the fund’s annual tax return, completing Question 9 – Was the fund wound up during the income year? – in Section A.
You should also complete Question M – Supervisory levy adjustment for wound-up funds – in Section D so the supervisory levy (which is paid in advance) can be adjusted for your fund.
Tax obligations can be paid when you lodge the SMSF tax return.
The ATO will then examine the audited accounts and determine whether there are any final tax obligations or refunds due. Any final tax owed can then be paid from funds remaining in the SMSF’s accounts.
Step 6
Finally, the ATO will send you a letter stating that your SMSF’s ABN has been cancelled and your SMSF’s record has been closed on the ATO’s system. This letter is, in effect, confirming that you have met all reporting and tax responsibilities and you can now close the fund’s bank accounts.
