Winding up a fund

By Liz Westover CA

A SMSF may have long been an appropriate retirement savings vehicle for individuals, but a variety of circumstances can arise that will either warrant or require a fund to be wound up. It is important for trustees, their accountants or other advisors to recognise when these occur, consider the ongoing suitability of the fund and where appropriate, go about winding up the fund in the correct way. Failing to wind up a fund correctly may result in compliance action by the ATO and penalties being imposed on the trustees.

When might you wind up a SMSF?

The following circumstances would warrant consideration of the closure of a SMSF:

• Insufficient funds in the SMSF to justify ongoing fees to operate the fund. Members with low balances may be better off in a larger APRA-regulated fund
• Diminishing capacity of the trustees to manage their fund effectively (for example, failing mental capacity or inability to dedicate the time required to properly manage the fund) 
• The fund has paid out all member balances either as benefit payments (where conditions of release have been met) or as a rollover to another fund ? Relocation of the trustees overseas (SMSF trustees must adhere to residency rules. An inability to meet them may require the SMSF to be wound up)
• Members are now deceased.

From time to time, it would be prudent to review a client’s situation to ensure that a SMSF remains an appropriate retirement savings vehicle for them. Under the current accountant’s exemption (from holding an Australian Financial Services Licence), an accountant can recommend the closure of a SMSF.

In all cases, certain processes must be followed to effectively wind up the fund. It is not simply a case of ceasing to operate or rolling out all benefi ts. Dealing with the fund’s assets and liabilities is one aspect of winding up a fund, however administrative and reporting obligations must also be fulfilled.

Where to start when winding up

Before commencing a fund wind-up, read the funds trust deed – it may contain specific and important information that can assist or direct how a fund is to be wound up.

The fund’s assets and liabilities will need to be dealt with. This may include the sale or disposal of assets, or payment of outstanding liabilities, including settling accounts with the ATO. It is advisable to contact the ATO to ensure that all matters are settled including any refunds due, ensuring activity statements are up to date and fi ling fees are paid.

Reporting obligations

Depending on the reason for winding up a fund, the following reporting obligations may need to be met before winding up the fund:

• Request for rollover from a fund receiving any member benefits
• Rollover benefit  statements
• PAYG payment summaries for benefits paid to members during the income year
• PAYG payment summary statements
• SMSF Annual Return.

The final SMSF Annual Return will need to be prepared ensuring that question 9 (was the fund wound up during the income year?) is answered in full. This will include ticking ‘yes’, entering the date of wind up and a confirmation that the fund has met its tax lodgement and payment obligations. The final accounts prepared in conjunction with the annual return will require an audit to be undertaken.

You will also need to notify the ATO, within 28 days of the fund being wound up, of the following information:

• Name of the fund
• Australian Business Number (ABN)
• Contact person (name, phone and fax numbers)
• Date of wind up.

The ATO will take care of the cancellation of the fund’s ABN. This does not need to be done separately. The trustee will be notified in writing by the Australian Business Register when the SMSF’s ABN has been cancelled.

It is important that the fund’s bank accounts are not closed until after all of the above in case there are any final payments to be made either to the ATO or others (including accounting or audit fees). Finally, it is worth noting that the final accounts will need to be kept for at least five years. Other records may need to be kept longer.

To assist trustees and their advisors when winding up a fund, the ATO has published a guide, Winding up a selfmanaged super fund – what you need to know. Copies can be downloaded from www.ato.gov.au

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Liz Westover is the Institute’s head of superannuation.

Article last updated 7 February 2012