6 steps on the path to winding up an SMSF
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Winding up an SMSF may occur for a number of reasons. But what needs to be done and what documents need to be prepared?
There is a compliance/legal path to follow and this article outlines key points along that path.
Note: This article is a general guide to winding up. Each fund will be different depending on each member's circumstances, the rules of the trust deed, and the asset/liability position of the fund.
Step 1: Look at the trust deed
The trust deed of the fund will usually contain a section which sets out who has the power to wind up the fund, who needs to be notified, and the procedure of allocation of the fund's assets.
This section of the deed may commonly be called "termination of the fund" or "winding up". It is important the rules on winding up outlined in the trust deed are followed.
Step 2: Call the ATO
The trustee should contact the ATO on 13 10 20 to find out whether there are any outstanding activity statements, liabilities or refunds relating to the fund.
Step 3: Work out what will happen to the fund's assets (non-cash) and where each member's benefits are to be paid
If the fund owns real property or other assets that are not cash, it will be necessary for the trustee to consider whether those assets are to be liquidated or, alternatively, transferred in specie to the members of the fund.
Any cash benefits can be transferred as a rollover to another complying superannuation fund, or by paying the funds to the member directly.
However, the relevant condition of release under superannuation laws will need to have been met before any funds are paid out directly to a member.
Where assets of the fund are sold, transferred in specie or cash benefits paid directly to a member, appropriate advice on any tax implications and any other implications such as the impact on Centrelink entitlements should be taken into consideration before determining the appropriate course of action.
If a transfer of an asset in specie is to occur, the value of the asset being transferred or portion of the asset being transferred cannot exceed the member's total benefit in the fund.
Where a member of the fund has passed away, the relevant rules in the trust deed about the allocation of a deceased member's benefits should be followed.
Step 4: Complete the necessary paperwork
Documentation such as resolutions of the trustee, notification letters to members in relation to the winding up of the fund, relevant ATO forms and ASIC forms may need to be completed depending on where benefits are to be paid, the trustee structure and the procedure on winding up set out in the trust deed.
The relevant documents may need to be prepared by solicitors, accountants, financial advisers and auditors.
An SMSF auditor will need to be engaged and a final tax return for the fund prepared and lodged with the ATO.
Step 5: Take the necessary action to distribute the cash/assets and lodge the relevant documents/notifications to third parties
The liabilities of the fund will normally be paid out first and then the balance of each member will be distributed.
A reserve account can also be established to hold an amount of cash that will be used to pay any future liabilities.
Any documents such as land transfer documents, ATO forms et cetera will need to be submitted to the relevant organisation and within the required time frame, if applicable.
The ATO will need to be notified within 28 days of the fund being wound up.
Step 6: Closure
Once any outstanding liabilities or refunds are distributed, the fund's bank account can be closed.
It is important to note that financial statements and accounts of the fund must be kept for five years and minutes and records of the trustee need to be kept for 10 years.
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Natasha Ng is a solicitor at Townsends Business & Corporate Lawyers. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.
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