Winding up an SMSF is similar to closing down a company. An SMSF might be wound up because:
The SMSF never had any funds in it – in this case the wind up process is fairly straightforward
All the benefits may have been paid out of the fund
To wind up your SMSF you will need to notify the ATO within 28 days, lodge your final annual return and finalise any outstanding tax liabilities. On the first page of the tax return, tick the option advising the ATO that this is the final tax return. When Superannuation Warehouse handles your SMSF, we will perform this function.
The death of a Member
For an SMSF with only one Member, paying out the balance to beneficiaries on the Member’s death means the end of the SMSF. Funds with more than one Member will continue unaffected.
No assets left
If all the monies in the SMSF have been paid out to members either as a lump sum or as pension payments, you will need to wind up the SMSF.
It’s just not for you anymore
Trustees can decide to move their member balance back to a retail superannuation fund. When doing so all assets need to be converted to cash and transferred to the next fund. There is nothing wrong with this, it is a perfectly legitimate course of action.
If one or more of the Trustees move overseas then, depending on their length of absence, your fund may be in danger of losing its status as a resident fund. In this case, the most cost efficient option is to move funds to a retails superannuation fund and close down the SMSF.
ATO Trustee Disqualification
Trustees can be disqualified if they are found to be not compliant with superannuation law, such as illegal access to super funds. If you are the only Member of the SMSF, you would be required to wind up the Fund and you cannot set up a new SMSF. An article was released on this issue and is explained here.
Notify Superannuation Warehouse
We will close down the Fund with the ATO and have the ABN cancelled.
Trustees need to arrange for all investments to be sold and for the money to be deposited into the SMSF bank account. Subject to the member’s age and preservation components, this can be paid out as an in-specie lump sum to the member.
Either payout or rollover member benefits
Winding up of an SMSF means that there will be no assets left in the SMSF. To move these assets out means paying out lump sums to members – provided they satisfy a condition of release – or rolling over the members’ benefits to another complying superannuation fund (usually a retail fund or an industry fund). If you are rolling benefits over to another super fund, there are two ATO forms to complete:
– Request to transfer whole balance of superannuation benefits between funds (NAT 71223)
Members of your SMSF use this form to request the transfer of the whole of their benefits to another super fund.
– Rollover benefits statementt (NAT 70944)
When you rollover benefits to another superannuation fund complete this form as a trustee. You keep a copy, and send a copy to the super fund that funds are being transferred to.
– If any members are eligible (and have received) their beneﬁts as a lump sum payment, you will need to complete the form, ETP payment summary – superannuation fund (NAT 2606).
– PAYG payment summary – superannuation income stream (NAT 70987) needs to be completed if a pension or annuity payment was paid to a member and tax was withheld.
– A PAYG payment summary statement (NAT 3447) will need to be completed if you issued a payment summary throughout the year.
Note also that where you are selling assets in order to pay out benefits or roll over benefits to another fund, there may be capital gains tax issues.
Final SMSF annual return
In the same way that your SMSF must be audited each year, it will also need to undergo a final audit when it is wound up, and before you lodge your final annual return. Completing the final return will include filling out the ‘wind up’ labels and finalising any outstanding tax liabilities.
Receive confirmation from the ATO that your SMSF has been wound up
If everything has been done correctly, the ATO will send you a letter stating that they have cancelled the ABN and closed your SMSF records on their system.
Don’t close your SMSF bank account until you have received the ATO confirmation letter, otherwise you may not be able to bank any refund you may receive.
The consequences of accidental vesting could be catastrophic from a tax and compliance viewpoint with the full marginal rate of tax being levied against whatever assets the fund should have retained and even criminal charges for conducting an early release scheme.
The ATO also has a useful guide book on winding up SMSFs which you can download as a printable pdf from the list of ATO booklets at this link http://www.superannuationwarehouse.com.au/information/ato-as-regulator/ )