There are several legal compliance requirements when it comes to winding up a self-managed super fund, and it is crucial to understand all of your responsibilities before winding-up.
It is also crucial to keep in mind that once you’ve wound up your SMSF, there will be no reactivating it. So you must be sure of your decision to wind up before enacting it.
In the end, though, each SMSF must be wound up by the trustees at a certain stage.
It’s just a matter of time.
Why you may be Compelled to Wind up your SMSF
There are several reasons why you might end up winding up your SMSF, and these include:
- Relieving yourself with current administrative responsibilities and burdens for running an SMSF, for instance, because of health or age reasons
- The super fund’s assets reduce through time into levels where it is no longer wise to maintain or invest in it. There may be significant annual and administration costs involved in managing a SMSF.
- A relationship breakdown happening between fund members.
- The fund members have passed away or have obtained their entitlements.
- All of the fund members want to transfer entitlements to another fund. For instance, transferring benefits to a retail or industry super fund.
- You or other super fund members are no longer Australians for tax purposes and planning to relocate overseas.
The process of winding up your self-managed super funds
Follow these six steps to make sure that winding up your SMSF is as smooth as possible.
- Get a written agreement with all the members to wind up the SMSF.
- Check out your SMSF’s trust deed. Make sure that you conform to the winding-up requirements it may contain. These trust deeds generally have specific exit strategies that are set to guide members during the winding-up procedure.
- Agree with the fund members what they want to do with their benefits – for instance, whether it is paid out straight in the form of a lump sum or rolled over to another fund as long as they are eligible to receive such funds.
Members who want to rollover their super fund to a fund of their choice should fill out Australian Taxation Office, or ATO forms Rollover Initiation request to transfer superannuation balance benefits in between funds. The member should submit such form to the new super fund.
The fund trustees should then complete, for the member the ATO Rollover benefits statement.
Before you rollover, though, it’s essential that you find lost superannuation online. “Find my super fund?” You may ask. These unclaimed super money are yours and just waiting to be claimed. They would be a good addition to your consolidated nest egg.
Such form should be submitted to both the new super fund and SMSF member.
The fund trustee must set out the ATO PAYG payment summary revealing the superannuation lump sum for qualified members who chose to get their SMSF benefits in the form of lump-sum directly.
Such form must be submitted to the ATO as a copy file kept by the funds’ trustees for five years.
- Paying out or rolling over all the fund member benefits to meet all trust and superannuation deed legal requirement.
Members can’t be paid towards their SMSF benefits straight unless they’ve reached the super preservation age and satisfied the conditions of release like retiring or starting a transition-to-retirement pension.
A member’s preservation age will depend on the date of birth. It varies from 55-59 for individuals born between July 1, 1960 – June 30, 1964, as is the 60 for anybody born during or later than July 1, 1964.
SMSF should be rolled over to another superannuation fund for members who haven’t reached the preservation age or satisfied a condition of superannuation release.
- Do the final audit with your SMSF auditor to accomplish all your tax payment and reporting obligations with the ATO.
Such tax obligations may cover:
All income earned by the fund within the present financial year (taxed at the concessional 15% rate). Such income may cover SMSF:
- Member contributions
- Dividends over shares
- Interest over investments
- Rent over an investment property
- Capital gains tax obligations over any SMSF asset sales that are done to pay for rollover amounts or fund member benefits.
Submitting your final yearly SMSF return to the Australian Tax Office entails passing any member’s lump-sum payment forms. The Australian Taxation Office should be informed within 28 days that your fund is being wound up. The ATO will evaluate the SMSF’s final audited returns to see if there are any excellent refund or tax payment due.
The ATO also has the responsibility to cancel the fund’s ABN or Australian Business Number. You will obtain a notification from the Australian Business register once the ATO cancels your Self-managed Super Fund’s ABN. Such notification will confirm that the fund was wounded up.
- Close your Self-managed Super Fund’s bank account. An SMSF should have zero assets once it is finally wound up.
There are various reasons why winding up an SMSF is feasible. Some legal compliance requirements should be met during the winding-up procedure.