Winding up an SMSF

One of the most common questions we as auditors get is “why should I get you to audit my superannuation fund?”

Initially we respond we respond with that we are trained professionals who are registered with ASIC and have broad knowledge when it comes to the administration and operating a fund. We are required to constantly undertake further education to ensure we are up to date with the current legislation. Secondly, we are often prepared to provide advice to trustees on issues they have when it comes to operating their fund.

Do you know what is involved when it comes to winding up your self managed superannuation fund?

The ATO advise that there are four steps to ne completed when it comes to winding up a SMSF.

The starting point is straight forward, you must notify the Australian Taxation Office within 28 days. The notice needs to be in writing, including SMSF name, ABN and contact details and the date the fund is to be wound up. When it comes to dealing with the members’ benefits it is not so straight forward. Members need to refer to the trust deed and superannuation law to comply. Consider, a fund may only be wound up if it has no members or if all members agree in writing to its winding up, or when superannuation law requires the fund to be wound up. Documentation of the process is critical.

What are the main reasons for winding up a fund?

  1. All members and trustees have left the fund.
  2. All benefits have been paid out.
  3. The fund may o longer meet the definition of an “Australian Superannuation Fund” because the trustees have moved overseas permanently or
  4. Members have decided that it is not in their best interests to use the SMSF structure as their retirement savings vehicle.

Trustees responsibility prior to winding up, is to dispose of investments in order to pay member benefits. These sales may result in a capital gains tax liability that must be paid before the trustee can set about distributing funds to members. They also need to close the income account and reserve account and transfer the balance to members accounts as prescribed in SIS law. There must be no assets remaining in the fund when it is wound up. All expenses and taxes must also be paid as part of the winding up process. This includes fees to accountants, auditors. The fund’s last income tax and regulatory returns will need to be lodged. This includes ensuring the fund completes a final financial and compliance audit.

In some cases, benefits will be able to be distributed directly to fund members, providing they meet a condition of release. If that is not the case, a members account balance will need to be rolled over into another complying fund.

Where the fund is being wound up because the last remaining member has passed away, the trustee must comply with the wishes of the member’s binding death nomination (if there is one). Otherwise they can distribute the benefits as they believe equitable.

So in response to your question, why should I get you to audit my superannuation fund? We have experience when it comes to the winding up of a fund and day to day administration.

DISCLAIMER: The above is general advice only, you should not act on this advice without consulting a professional adviser to discuss your personal circumstances.