How to wind up an SMSF

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.

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.

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 what they would like done with their member benefits.

Step 4

Once all members have decided what to do with their benefits, funds can be paid out.

If members are still in accumulation phase, they need to roll over their funds into another super fund. This doesn’t need to be another SMSF, it can be any kind of super fund – such as an industry or retail fund.

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 should understand there may be a delay before they can access their super as a lump sum or roll it into a new fund.

Any sale of assets will incur transaction costs, such as the trading costs on the sale of shares. 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 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 on asset sales are difficult 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 15% rate as other income in the fund. If an asset is held for more than 12 months any capital gain is eligible for a discount of one-third.

Remember: 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 approved by the Australian Securities and Investments Commission (ASIC). 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.

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 by filling out Question 9 – Was the fund wound up during the income year? – in Section A yourself. However, you will still need to pay an auditor to complete the final audit (just like your regular audit).

According to the latest ATO data, the average audit cost was $628. As the auditor will also be calculating the potential costs and capital gains tax of the divestment of assets, it would be reasonable to expect the cost of the audit to be more than the average.

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 a partial 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 more than you usually do for preparing the final financial statement and tax return.

Tax obligations can be paid when you lodge the SMSF tax return. Lodging your final self-managed super fund annual return (SAR) will also notify the ATO of your intention to wind up

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.