Why wind up a SMSF?

The process of winding up an SMSF requires the trustee of the fund to deal with the fund's assets and comply with its reporting and administrative obligations.

A trustee may elect to wind up an SMSF for various reasons, including:

• No assets left — the fund has paid out all of the money in the SMSF to its members.
• No members left — all of the members and trustees may have left the SMSF (for example, they may have rolled their benefits to another fund or have passed away).
• Death of a member — when a member dies and there are still other members remaining in the SMSF, they may decide they do not wish to continue with the SMSF.
  • In the case of the death of a member, generally, the member's legal personal representative will act as the trustee of the SMSF until the member's death benefits have been paid out.
  • A member's benefit in the fund must be either cashed in or rolled over for immediate cashing in accordance with regulation 6.21 of the Superannuation Industry (Supervision) Regulations 1994, as soon as practicable after the member dies.
• Matrimonial split — husband and wife members divorce and require the SMSF to be wound up.
• Inadequate balance of funds — there are inadequate monies remaining in the SMSF to meet its operating costs.
• Trustee relocation overseas — depending on the length of absence, if one or more of the trustees relocates overseas, the SMSF may be at risk of failing the meet the criteria of an 'Australian superannuation fund'. In these circumstances you should seek advice from a lawyer to discuss your options. More information about the residency requirements of SMSF's is available here.
• Change of mind — trustees may decide that they either do not wish to continue managing their SMSF and would rather pass this responsibility over to a fund manager by rolling their superannuation into a retail or industry superfund, or becoming a small Australian Prudential Regulation Authority (APRA) fund (which is a small fund with less than 5 members but which has an independent trustee and is regulated by APRA, not the ATO).

What trustees must do

To wind up the SMSF, the SMSF trustee(s) must:

1. Review the provisions of the SMSF's deed that govern winding up.
2. Seek advice from a lawyer to ensure they follow the winding up procedures set out in the SMSF's deed. All decisions must be recorded by minutes or by resolution (as appropriate) and the members must be notified.
3. Obtain balances of any SMSF accounts.
4. Prepare and lodge any outstanding returns and refunds with the relevant bodies (i.e. the ATO).
5. Pay the SMSF's outstanding liabilities (if any).
6. Once all of the SMSF's liabilities have been determined, then the trustee(s) must either pay out or rollover the members benefits.
   • Trustees must also observe any super laws which prevent payment of benefits to members until the attainment of a certain age or other approved criteria. In these circumstances, the benefits may need to be rolled over to another complying super fund.
   • If you are rolling over benefits into another fund, seek advice from a taxation lawyer on potential capital gains tax issues.
7. Ensure all of the SMSF's assets have been sold and the members contributions dealt with in accordance with the SMSF's deed and super laws.
   • Ensure that all of the proper steps are taken to transfer ownership and title to any assets.
8. Arrange for an approved auditor to conduct a final audit of the SMSF. This audit must be completed before the final tax return can be lodged.
9. Lodge the SMSF's final annual tax return.
10. Notify the ATO, in writing, within 28 days of the SMSF being wound up, with the following information:
    • the name and ABN of the SMSF;
    • the date the SMSF was wound up; and
    • the details of a contact person including their name, phone number and fax number.
11. If the SMSF has a corporate trustee, decide whether they wish to deregister (or wind-up the deregistration of) the company with the Australian Securities and Investments Commission.

How to deal with members' benefits?

The ATO has published a useful table on dealing with members benefits, that sets out which forms the trustee must lodge with the ATO in various circumstances.[1] A simplified version of this table is set out below:

What not to do

1. Cancel the SMSF's Australian Business Number (ABN) — once the ATO has been notified of your intention to wind up the SMSF, it will cancel the SMSF's ABN on your behalf, effective from the date of winding up.
2. Dispose of the SMSF's paperwork — records for the SMSF must be kept for 5 years with the exception of the ATO self managed super fund trustee declaration form, which must be retained for at least 10 years or for the period under which the trustee remains a trustee or a director of the corporate trustee (whichever is longer).
3. Close the SMSF's bank account — do not close the SMSF's bank account until all outstanding payments have been made to third parties and you have received all outstanding refunds owing to the SMSF. Any refund cheques sent from the ATO will be in the form of a cheque issued to the name of the SMSF and in turn, will need to be banked into SMSF's bank account. Be warned that once a bank account has been closed, it can only be reopened by producing a new trust deed.

How do I know if my SMSF has been wound up?

The ATO as part of the Australian Business Register will send you a written notification upon the cancellation of the fund's ABN. The fund will be wound up once the trustee has complied with all the

winding up procedures set out in the fund's deed.

The Cleardocs SMSF deed

The Cleardocs' SMSF deed sets out the following procedures for winding up of the fund:

• Trustee may elect to wind up fund — the trustee may elect to wind up the fund on a specified date in any of the following cases:
  • the trustee decides to wind up the fund;
  • the employer-sponsor (if applicable) gives the trustee written notice that it has decided to wind up the fund;
  • there are no longer any members of the fund; or
  • the regulator[2] requires the fund to be wound up.
• Notice — the trustee must give notice to each employer or participating employer (as applicable) and member, that the fund is to be wound up on the specified date.
• Payment on winding up — after deducting from the assets of the fund the costs of administering and winding up the fund, the trustee must pay the benefits in the following order to the extent that the assets of the fund are sufficient to do so:
  • Benefits to which members, former members or their dependants are entitled but which they have not been paid on the day before the termination date.
  • Additional benefits to members, former members or their dependants as the trustee thinks appropriate.
  • Payment to the fund employers or participating employer (as applicable), that have made contributions in respect of members or former members as the trustee thinks appropriate.

Of course these provisions are still subject to superannuation law, meaning:

• the trustee may only pay benefits to members if permitted by the preservation rules — otherwise the benefits will have to be transferred to a complying fund; and
• all the trustee's other duties as trustee continue to apply.

More information from Maddocks

For more information, please contact Maddocks (03 9288 0555) and ask for a member of the Commercial Team in Melbourne or Sydney.

More Cleardocs information on SMSFs

Order SMSF related document packages

Set up an SMSF

Update an SMSF deed

Set up an SMSF pension

Arrange SMSF borrowing lending docs:

• for when the lender is a bank
• for when the lender is a related party

Set up an SMSF corporate trustee

SMSF Death Benefit Nomination - binding or non binding

SMSF Death Benefit Agreement - binding and permanent

Download

Download a checklist of the information you need to order a document package.

[1] Winding up a Self-Managed Super Fun — what you need to know, Australian Taxation Office, available at: http://www.ato.gov.au/superfunds/content.asp?doc=/content/00182487.htm.

[2] 'Regulator' means the particular Commonwealth body responsible for the administration of the

relevant aspect of superannuation. It may be the Regulator of Taxation, the Australian Prudential

Regulation Authority, the Australian Securities and Investments Commission or some other body.