There will most likely come a time when your SMSF will need to be wound up, with a change in members, the fund’s finances, perhaps
separation or other family causes among the many reasons why winding up the fund becomes necessary.
The many reasons people may find it necessary to wind up an SMSF could include:
Once the decision to wind up an SMSF has been made, it is always a good idea to sit down and read your trust deed, as it may contain vital
information about winding up your fund. And remember, once a fund is wound up, it cannot be reactivated.
THE NECESSARY STEPS
You need to let the ATO know within 28 days of the fund being wound up. This is best done in writing, to ensure a record is made, but you must include:
You will also need to deal with member benefits, and will have to make sure that:
But remember, if you have wound up your fund but you, as a member, have not met a condition of release – retirement, transition to retirement, or reaching an eligible age – you cannot access your superannuation. Your superannuation needs to be rolled over into another regulated superannuation fund. Remember, there are serious legal penalties for accessing your superannuation benefits before you are legally allowed.
Advice may be required on the potential capital gains tax (CGT) implications for your SMSF on the disposal of assets to enable the payment of benefits or the rollover of benefits to another fund.
When winding up your fund, you will need to have an audit completed by an approved SMSF auditor before you can lodge your final SMSF annual return. Also any outstanding tax liabilities will need to be paid at this time and lodge any outstanding returns from previous years
It is important to wind up your fund correctly. If you fail to carry out these reporting responsibilities, you may be the focus of compliance activities and you may be subject to penalties.
After meeting all of your tax responsibilities, the ATO will send you a confirmation letter stating that it has cancelled your SMSF’s ABN and closed your SMSF’s record on its systems.
The most common tax issues are outlined below.
Unrealised capital gains
If an asset(s) of the fund has been held over a long period, a capital gain (or loss) event would be triggered upon disposal where the SMSF is in accumulation phase.
If the fund is wound up and a net capital gain arises, the fund will have significant taxation liabilities which, in effect, will reduce the members’ overall superannuation balance.
Significant realised/unrealised capital losses
Alternatively, the reverse is that the fund may realise a capital loss during the wind-up process. While these capital losses can be added to the capital losses carried forward from previous years and offset against any current year capital gains, any residual capital losses that are not utilised during the wind-up process will be wasted. Because they cannot be transferred to another person (member or beneficiary) or entity (another superannuation fund), the benefit from any remaining unused capital losses will be lost once the fund is wound up.
Carried forward income tax losses
Some SMSFs can have carried forward income tax losses (because they could not claim any tax deductions that exceeded their income) that could be used to offset any future taxation liability of the fund. Unfortunately, as with capital losses, the benefit of using up its carried forward income tax loss will be lost upon wind up.
Before you take any further steps, speak to one our financial advisers on 1300 447 007.