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There are many reasons why you might choose to wind up your self-managed superannuation fund (SMSF) – 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 – but, just like starting a 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 might offer some assistance.)
You also can’t put an SMSF ‘on hold’, so once you’ve shut it down, it’s not something that can be started up again.
If you have made the decision to wind up your SMSF, it’s important you 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 will be as susceptible to fines and penalties as you would be if you hadn’t been managing it correctly during its active life.
Some of the steps for winding up an SMSF may seem self-explanatory and may have occurred to you already, but some may not, so read through these six steps thoroughly to make sure you cover all your bases.
Step 1: Like all things important for your SMSF, you need to get the consent of all the members of the fund in writing. You also need to 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 as to the processes you need to go through to close your particular SMSF.
Step 3: When you’ve completed the above two steps you need to determine what to do with member benefits. When your SMSF closes, it needs to have zero funds, so all existing monies need to be paid out to members or rolled over to another superannuation fund.
Remember members can only access their superannuation if they have met a condition of release.
The most common conditions of release are when a member reaches their preservation age (see table below) and retires; when a member ceases an employment arrangement on or after the age of 60; or when a member is 65 years of age (even if they haven’t retired).
| 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 and 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 a decision has been made as to 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 superannuation fund. This can be any kind of superannuation fund – including industry and retail superannuation funds – and doesn’t need to be another SMSF.
To rollover funds into another fund, members need to complete this ATO form and forward it to the new fund. The SMSF trustee needs to complete this form and send it to both the member and their new fund.
For members who have met a condition of release for their super and are receiving a lump sum, the SMSF needs to complete this form which needs to be lodged with the ATO.
SMSF assets will need to be sold to fund member benefit payouts and this may incur capital gains tax. If the fund has illiquid assets, such as property, it may also take some time to sell the assets and members will need to understand that there may be a delay before they can access their super (either to receive it as a lump sum or roll it over to 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: You need to 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 of the fund needs to be ASIC approved (see their register).
The audit will assist you in finalising the fund’s tax obligations in respect of capital gains tax and tax on any income – either through investment returns or member contributions – received by the fund.
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 to have the supervisory levy (which is paid in advance) adjusted for your fund.
Tax obligations can be paid when you lodge the SMSF tax return, and member lump sum payment forms need to be submitted with the tax return as well.
The ATO will then examine the audited accounts and determine whether there are any final tax obligations or refunds due. Pay any final tax owed from the funds remaining in the SMSF’s accounts.
Step 6: The ATO will then 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.
Wrap-up
It’s important that you don’t drop the ball when it comes to winding up your SMSF just because your SMSF is no longer fit for purpose. Make sure you complete all the above steps to escape the ATO’s scrutiny.
