How to wind up an SMSF

What you need to do to wind up your SMSF, including paying member benefits and finalising your reporting obligations.

Check your trust deed and exit plan

It’s important for all funds to have an exit plan in place even if you’re not ready to wind up now, as this will make it easier when the time does come.

Your plan should consider all the circumstances of your members and be signed off by all trustees. You should also keep this plan with the fund’s records.

When developing your exit plan you should consider:

• how to deal with member benefits upon their death
• appointing an enduring power of attorney
• estimated costs of winding up
• liquidity of fund assets
• being SuperStream ready to enable roll out of benefits
• who will keep copies of the fund’s records and transactions.

Check your self-managed super fund’s (SMSF’s) trust deed and exit plan to understand any fund-specific requirements. These may include:

• if you can transfer ownership of assets to members rather than sell them
• how to deal with members’ benefits.

Make sure you review your exit plan regularly, assess your fund and each member’s circumstances to decide if an SMSF is still right for you.

Get written agreement

Organise a trustee meeting with all trustees to ensure everyone agrees with the decision to wind up the fund.

Document this decision in the meeting minutes and keep the document with the SMSF’s records.

To avoid potential disputes, each trustee should sign the agreement to wind up. Electronic signatures are acceptable.

Dispose of assets

Sell or dispose of all the fund’s assets, making sure you allow enough time to sell them. This will enable the payment of benefits to members or the rollover of benefits to another fund.

Ensure you:

• consider the liquidity of all fund assets
• deal with all assets in accordance with super laws and your fund’s trust deed
• consider possible capital gains tax (CGT) and stamp duty implications from these events
• document all sale information including
• decisions on how, when and the amount at which to sell assets
• how they were valued
• the buyer, date, and amount each asset was sold for.

Pay outstanding expenses and tax liabilities

You must pay any outstanding expenses and tax liabilities. These may include:

• final invoices
• expenses due to asset sales
• outstanding tax liabilities (such as PAYG instalments, PAYG withholding and CGT.

Log into Online services for business or contact your tax professional to:

• find out the balance of accounts we hold for your fund
• request refunds if they are due.

You can’t close your fund if there are credit or debit balances remaining on the accounts.

If you receive a refund that you are not eligible to access, ensure you roll it over using SuperStream immediately after receiving it and before we cancel the fund’s Australian business number (ABN). The SMSF member TICK service is available to validate a member’s tax file number. Trustees can rely on the valid response from the service when they roll over member benefits.

Finalise outstanding tax and compliance obligations

You must complete all reporting and lodgement obligations before you lodge your final annual return and wind up your fund.

Each fund is unique, so what you need to report will depend on what types of payments, investments and expenses your fund has had.

Check if you have other reporting obligations like:

• pay as you go instalments
• goods and services tax (GST)
• business activity statements (BAS).

As a trustee, it’s your responsibility to keep proper and accurate tax and super records. There are different record-keeping requirements for how long you must keep different records.

You can complete all reporting and lodgement obligations using:

• Online services for business
• your registered SMSF professional
• Standard Business Reporting (SBR) enabled software
• paper forms available on our website.

Transfer balance account reporting

If you were paying any of your members an income stream (pension), you must end it before winding up and consider if you have any transfer balance account reporting obligations.

All SMSFs must report events that affect their members’ transfer balance account. Your member’s account is debited when they fully or partially commute a retirement phase income stream. This lump sum can be paid out of the super system, or it can be transferred to another fund.

If your member is rolling over their income stream to another fund, we strongly encourage you to report this commutation to us as early as possible.

For example, if an SMSF member rolls their super benefit into an APRA-regulated fund and starts an income stream there – and it is not reported to us by the SMSF at the time it happens – a double-counting of the member’s income streams will occur. This means they will be taxed more than necessary because there will be a mismatch in timing of the reporting done by the APRA-regulated fund and the SMSF.

Ensure you lodge a Transfer balance account report with us as soon as possible to avoid this happening to fund members.

PAYG withholding reporting

Your obligations for PAYG withholding reporting will depend on what benefits you paid to members.

You may need to issue a PAYG payment summary to your members if you paid:

• retirement benefits to members such as an income stream (pension) or lump sum benefits
• a lump sum to a deceased estate, even if you didn’t withhold any tax.

If the benefits paid are not assessable income and not exempt income, neither of the following are required:

• withholding tax
• a payment summary.

You must provide us with a PAYG withholding payment summary statement for payments:

• of a capped defined benefit income stream
• to a deceased estate where you issued a PAYG payment summary.

This is even if you didn’t withhold tax.

You also need to complete a PAYG withholding payment summary statement and then follow up with a PAYG withholding payment summary annual report if you:

• withheld tax from benefit payments, or
• paid tax on benefits throughout the financial year.

Your PAYG withholding payment summary annual report is made up of the:

• PAYG withholding payment summary statement
• ATO copy of the payment summaries.

Sending these as soon as you provide payment summaries to the member makes it easier for them to lodge their tax returns. This is because we use the information to pre-fill individual income tax returns.

Calculate and distribute member benefits

You must work out the benefits each member is entitled to before:

• preparing the fund’s final return
• calculating a member’s closing account balance.

Your SMSF professionals can assist with this.

If you are selling or transferring any assets, address any CGT to ensure that your SMSF has enough funds to make the payments.

Any instructions from a member to a trustee about payment of benefits should be:

• documented in writing
• retained with the fund’s records.

With the death of a member, you can pay benefits to someone other than the member. This is after ensuring they are entitled to receive the payment under your fund’s trust deed and super law.

If you are already paying a pension to the member, ensure the pension payment standards are met before the pension is commuted and either:

• paid to the member
• rolled over to another fund.

Paying member benefits provides more details on what administration you need to complete to make these payments.

Ensure you leave enough money in the SMSF to pay amounts outstanding after lodgement of your annual return, such as any SMSF professional and audit fees and tax expenses.

Conditions of release

Allowing members to access their super before they are legally entitled can result in significant penalties to trustees, the SMSF and the member. The member may also have to pay tax on the super received.

How you distribute benefits will depend on if your fund members meet a condition of release.

If the member meets a condition of release, they can choose from either:

• paying benefits as cash
• rolling benefits over to another complying super fund.

If they are a member and do not meet a condition of release, you must roll over their benefits to another complying super fund.

Complete final SMSF audit

Prior to lodging all outstanding SMSF annual returns (SARs):

• check your fund has been audited every year since its establishment by an approved SMSF auditor
• ensure any outstanding audits as well as the audit for the final income year are completed by an approved SMSF auditor.

Lodge final SMSF annual returns

Lodge all outstanding annual returns.

Also complete and lodge the fund’s final return, answering:

• in section A, question 9: Was the fund wound up during the income year?
• include the date the fund was wound up and that you have met all your tax lodgement and payment obligations
• in section D, question M: Supervisory levy adjustment for wound up funds
• check the Supervisory levy table in the relevant SAR year instructions as this shows what category your fund fits and the SMSF supervisory levy that is applicable.

Confirmation your SMSF has been wound up

By completing and lodging your final SMSF annual return, you have informed us that your fund is winding up. You don’t have to write to us to wind up your SMSF or cancel the fund’s ABN.

Once we have processed your final annual return, we’ll send you a letter stating that we have:

• cancelled your SMSF’s ABN
• closed your SMSF’s record on our systems.

Once a fund is wound up, it can’t be reactivated.

It is also your responsibility to ensure proper and accurate tax and super records are kept for the appropriate timeframe even when your fund has been wound up.

Notify third parties

Consider who you need to advise when you wind up your fund.

Make sure you notify any:

• employers making contributions to your fund
• SMSF professionals such as your tax agent, auditor and financial adviser.

If your fund has a corporate trustee structure and the corporate trustee was only set up for the purposes of the SMSF, notify Australian Securities & Investment Commission that the company needs to be deregistered.

Close your SMSF bank account

Make sure you close your fund’s bank account last.

If you close it too early:

• it can delay the wind-up process
• we may not be able to issue any refunds.

Only close your fund’s bank account after ensuring you have:

• paid all final liabilities
• received all final refunds from us – make sure we have the fund’s correct bank account details
• completed rollovers using SuperStream
• received confirmation from us that your fund has been wound up.

If you have any questions, feel free to ask them in the comment section. We will be happy to answer all your queries.