An SMSF (self-managed superannuation fund) is an attractive vehicle for retirement savings for many Australians. Though the setup and administration of an SMSF can be daunting, with proper planning, it can offer tax advantages and greater control over your retirement savings.
However, if you decide to go along the route of winding up an SMSF for whatever reason, there are a few things you need to know. So, if this is something you are considering, here are the key steps involved in getting started, and the consequences that are attached.
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What Is a Self-Managed Superannuation Fund
What sets a self-managed super fund apart from other funds is that it is managed by the members (individual trustee or corporate trustee) themselves, instead of fund providers managing it on their behalf. Controlling your own fund means that you can make independent decisions about how to structure your retirement savings, how you invest your money, and how much risk you’re willing to take on.
However, while having an SMSF brings about a significant amount of freedom, there are many rules and regulations around how you would manage it – which means with freedom comes a great amount of responsibility.
The Australian Tax Office (ATO) proposes strict guidelines when it comes to setting up the SMSF, administration, and winding it up. Each of these processes is complex, often requires a lot of paperwork, and typically has significant tax implications.
So, you need to make sure you are fully informed of each step in the process – especially when it comes to winding up your SMSF.
Winding Up Your SMSF: What Does it Entail?
Whatever the reason may be, whether your SMSF is not performing to your expectations or it is becoming too expensive to run, there are quite a few steps you need to follow if you have decided to wind up your SMSF. If you don’t follow the necessary processes, you could face various fines and penalties.
The following steps will give you an overview of what you can expect from the winding-up process. However, it is a simple overview, and we highly recommend that you consult an SMSF expert or your tax accountant to navigate the process in relation to your specific circumstances.
Steps You Need to Follow When Winding Up a Complying Superannuation Fund
Steps |
Winding Up Process |
| Step 1 | The very first step requires you to review your SMSF trust deed that was drawn up during the set-up stage. The document may contain important provisions relating to the winding-up process of your fund. |
| Step 2 | Once you have reviewed the necessary provisions in the trust deed, you’ll need to call a trustee meeting. During the trustee meeting, the trustees (or members) must sign an agreement stipulating that the fund will be closed. The agreement should also detail how the members’ benefits should be paid out. (See discussion below regarding rolling over the benefits into a new fund or paying out the benefits in a lump sum). |
| Step 3 | Once the agreement is finalised, the trustees (generally with the help of an SMSF accountant) must calculate outstanding tax and other debts owed by the fund. The trustees must account for the administration process for winding up the account, which includes:
In addition to these expenses, the trustees must account for current and future tax liabilities, including capital gains tax on the disposal of SMSF investment assets. |
| Step 4 | The trustees must now dispose of the fund’s assets and establish each member’s benefits in light of the proceeds from the sale of the assets. There are certain legal implications involved in how the transaction should occur, so make sure to consult the relevant professionals during this stage of the winding-up process. |
| Step 5 | Following the disposal of assets, the SMSF trustees must have a financial statement prepared. |
| Step 6 | The trustees must now appoint an SMSF auditor to complete a final audit of the fund. |
| Step 7 | Once the audit is complete, the fund’s accountant must prepare and lodge a final SMSF annual return with the ATO and pay final tax liabilities. Along with the final tax return, the trustees must specify that the fund is being wound up. |
| Step 8 | If the trustees have followed all the necessary steps up until this point and the processes were completed as per the ATO’s guidelines, you should receive a letter from them confirming that your SMSF has been wound up and that its ABN has been cancelled. |
| Step 9 | Once you have received confirmation that the winding process is complete, you can proceed with closing the fund’s bank account. During step three, the trustees would have had to account for any bank fees and refunds relating to the SMSF bank account. |
| Step 10 | Make sure to retain all the necessary records and documentation in a safe space and keep them there for the specified time period. |
Pay Out or Rollover?
During step two of the wind-up process, the trustees and members must sign an agreement detailing how the superannuation benefits are distributed. Depending on whether or not the members satisfy the ATO’s conditions of release, the funds can either be paid out in lump sums or rolled over into another complying fund (such as an industry fund or retail fund).
If the circumstances require that the benefits be rolled over into another complying superannuation fund, the trustees must complete the NAT 71223 form and the NAT 70944 form. The first form is a request to transfer the benefits between the SMSF and the new fund. The second form is the rollover benefits statement.
If the members satisfy the requirements for conditions of release and have received their benefits as a lump sum payment, the trustee must complete the NAT 2606 form – which is essentially a payment summary.
The paperwork can get relatively confusing, so you should consult your SMSF administrator or account to ensure that all the necessary forms are completed accurately.
Key Takeaways
As you can see, there are a lot of steps to take when winding up an SMSF. Make sure that you’ve done your research and have all the necessary information at hand before beginning this process.
Your best chance of making the right decision and following the correct procedures is to get in touch with an SMSF expert and get professional advice. Because there are various legal implications and compliance red tape when it comes to your SMSF, you don’t want to take a chance on following the winding-up steps on your own.
If you need someone who could provide more advice on how best to approach winding up your SMSF or if you require assistance in completing the necessary processes, get in touch with the Box Advisory Services team today.
We offer professional services tailored specifically for SMSF members and trustees.
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