SMSF wind up

How to close and distribute the funds

Why would an SMSF wind up?

A self-managed super fund winds up for a number of reasons, such as unresolvable differences between members or trustees, or a trustee no longer being able or willing to fulfill their duties. 

In fact, each year more than 15,000 SMSFs are wound up.

Breakdowns and winding up

A breakdown in the relationship between trustees or members can often test an SMSF. It must be remembered however that trustees of an SMSF have a legal duty to act in the best interests of all the members of the fund. This means that even if parties have a falling out, they must still cooperate with the wishes of the members.

If there’s a breakdown in the relationship between members, it is possible for one member to leave the fund and roll their benefits over into another suitable fund, but it may require the SMSF to be reorganised and the trust deed rewritten.

How do you wind up an SMSF?

1. Review your trust deed
   Check your trust deed and ensure you understand the winding up requirements which were agreed at the establishment of the fund.
   
2. Sell or dispose of the fund’s assets
   In order to distribute or roll-over the super, assets owned by the fund may need to be liquidated or sold. This must be done in accordance with super laws and the trust deed.
3. Distribute or roll over the super
   Look at the terms of the deed with regards to paying out super. After working out how much should be kept in the fund’s bank account to cover tax and any other expenses, there are two options for dealing with the super balance:
   

   Rolling over: you can roll over into another fund. If your SMSF has member(s) who are in the pension phase, a transfer balance account report will need to be lodged. Your tax agent can do this online or there is a form at ATO. 

   Distributing: if a member is in the pension phase and they want all their money in one lump sum, then their proportion of the fund can be paid out in full to them.

4. Arrange for a final audit and lodge the final return
   Before you can complete the winding-up process, an SMSF must have one last audit by an approved auditor to ensure all the accounts and payments are in order, and then lodge a final SMSF annual return.

5. ATO will confirm that the fund is wound up
   

   Once the ATO is satisfied that all your tax and reporting obligations have been met, it will send you a letter confirming that your fund’s ABN has been canceled and your fund’s file at the ATO has been closed. This effectively means your fund is now wound up and it cannot be reactivated.

6. Close the fund’s bank account.
   

   With the fund wound up and all taxes and other expenses paid, it is time to close the fund bank account. The SMSF is now fully wound up.

Can I transfer my SMSF into an industry fund?

Yes, you can transfer your SMSF to an Industry SuperFund, whether you’re in the accumulation phase or when you’re already in the pension phase of your super. Your new fund will only be able to accept cash, so any non cash assets owned by the SMSF, including property, will need to be liquidated or sold. It is important that appropriate advice be sought to ensure both compliance with legal requirements and obligations to fund beneficiaries.

Get advice

Winding up an SMSF can be complex and complicated, so professional advice is recommended.

References
SMSF statistics - ATO
SMSF trust deeds - ATO