How to wind up an SMSF
Recently, we compiled the questions you have to ask yourself before deciding to establish a self-managed super fund (SMSF). 

But what if you already have one that you want to wind up? There could be many reasons you may need to wind up your SMSF:

  • there are no members left
  • there are no assets left
  • divorce
  • insufficient funds
  • relocation overseas
  • old age
  • death

Once the decision to wind up an SMSF has been made, there are certain obligations and requirements trustees must satisfy - both for the fund's members and for the SMSF regulator, the Tax Office. Read your superannuation fund's trust deed, as it may contain vital information about winding up your fund.

Do remember however, once a fund is wound up, it cannot be reactivated. We outline the four steps you need to take below. Click here to read the full article on page 7: 

Step 1: Notify the Tax Office within 28 days
You need to let the Tax Office know within 28 days of the fund being wound up. You can ask us to help you do it in writing but you must ensure we have certain details in order to assist.

Step 2: Deal with members' benefits
You need to make sure that:

  • you deal with members' benefits according to the superannuation law and the trust deed
  • you obtain market value balances of all related accounts
  • you ensure all SMSF assets have been sold and member contributions dealt with in accordance with the trust deed and superannuation laws
  • you ensure all proper steps are taken to transfer ownership and title of any assets
  • you decide whether any corporate trustees in your fund wish to deregister with the Australian Securities and Investments Commission (ASIC), and
  • your fund has no assets left once it has been wound up.

You can get GJB to find out the balance of any accounts the Tax Office holds for your fund. You can also ask us about the status of any activity statements and whether there are any outstanding. Make sure that all activity statements are up-to-date.

If you have wound up your fund but you, as a member, have not met a condition of release â€" retirement, transition to retirement, or reaching age 65 â€" you cannot access your superannuation. Your superannuation needs to be rolled over into another regulated superannuation fund. Remember, there are serious legal penalties for accessing your superannuation benefits before you are legally allowed.

Seek advice from this office on the potential capital gains tax (CGT) implications for your SMSF on the disposal of assets to enable the payment of benefits or the rollover of benefits to another fund. Remember though, you do not need to withhold tax when paying a benefit if the benefit is either:

  • From a taxed source and being paid
  • Being paid as a lump sum because the member has a certified terminal medical condition.  These payments are normally tax free. 

Step 3: Arrange a final audit of your fund
When winding up your fund, you will need to have an audit completed by an approved SMSF auditor before you can lodge your final SMSF annual return. Refer to our article Timely tip for SMSFs: Audit your fund before annual return deadline to learn more about the purpose of an SMSF annual return, how to appoint an SMSF auditor and what the ramifications are of failing to lodge an annual return when necessary.

Step 4: Complete your reporting responsibilities
When preparing and lodging your annual return, you need to complete all labels in relation to "Was the fund wound up during the income year?". You must also pay any outstanding tax liabilities at this time and lodge any outstanding returns from previous years. We can assist you in these matters.

It is important to wind up your fund correctly. If you fail to carry out these reporting responsibilities, you may be the focus of compliance activities and you may be subject to penalties.

To confirm you have met all of your tax responsibilities, the Tax Office will send you a letter stating that it has cancelled your SMSF's ABN, and closed your SMSF's record on its systems.

What NOT to do

  • Don't cancel your SMSF's ABN.  The Tax Office will do this once it has been notified of the intention to wind-up the SMSF. The Tax Office will then send the trustee written confirmation that the ABN has been cancelled.
  • Don't assume that lodging a final SMSF annual return and reporting wind up information is the last contact you will have with the Tax Office. You need to finalise all lodgement and payment obligations before you can wind up.
  • Don't dispose of any paperwork. A lot of your records will need to be kept for several years, and some even up to 10 years.
  • Don't close the SMSF's bank account until all expected final liabilities have been settled and requested refunds are received. Tax liabilities (including the final SMSF levy) can be prepaid or paid with lodgement of the SMSF annual return. Also, once a bank account for an SMSF has been closed, a new one cannot be opened without first producing a new trust deed.  

As you can see from the case study above, winding up an SMSF can be complicated at times.

Read more in our case study on page 9 or call us on 02 9686 3130 if you have any questions about how to wind-up the fund, need help with filling out electronic lodgements or information about the tax implications of winding up.

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