While SMSFs are popular retirement savings vehicles, there will likely come a time when the trustees of an SMSF find that the fund no longer suits their needs, and it may be appropriate to wind up the fund.
This may occur due to a variety of reasons, such as the trustees no longer having the time, interest or knowledge in running an SMSF, the death or loss of capacity of a fund member, low fund balances that make the SMSF less cost effective to run, fund members deciding to relocate overseas, breakdown of relationships between fund members, etc.
Once the decision has been made to wind up the SMSF, it is important that trustees plan and allow themselves sufficient time to action all the necessary items so that they can avoid the wind-up process from entering a new financial year (which then requires a new set of financial statements and tax returns to be prepared). Things to consider may include the below:
- If members are still receiving employer contributions in their SMSF, they will need to consider where their future contributions are going to be paid into and provide their new super fund details to their employer so that the contributions can be re-directed.
- If members are receiving a pension, they may want to continue the pension for as long as possible to ensure that the fund maximises its tax savings on earnings or capital gains made on the disposal of assets. A pro-rated minimum pension amount will also need to be paid before rolling over or cashing out the pension.
- The timing of the sale of illiquid assets such as property or collectibles will need to be considered and planned. Any assets that are unable to be liquidated, including any "frozen assets”, may need to be taken as a benefit payment (by transferring ownership to the member), provided a condition of release has been met.
- There is also a need to check whether any dividends or distributions will be paid to the fund after the wind up date, especially where the investment in question was held until the ex-div/distribution date, and if so, the sale of the investment must be timed correctly.
As there are a lot of things to consider, it is important to get specialist advice when winding up your SMSF so that you can prepare an exit strategy that clearly highlights potential impediments, timing of actions and the likely costs and steps involved.
If you require any assistance please reach out to the C&N team.
