Key takeaways
- Funds wind up for many reasons: simplifying affairs, members moving overseas, or a death.
- Members' benefits must be paid out or rolled over before the fund can close.
- A final audit and final annual return are required, even in the wind-up year.
- The fund must be reported as wound up to the ATO, and the process cannot be reversed.
There comes a point for many funds when winding up is the right call: members want to simplify, a key member has moved overseas or died, or the balance no longer justifies the running costs. Winding up is straightforward if done methodically, but it has a strict final sequence, and a fund cannot be reopened once it is wound up.
Before you start
Check the trust deed for any wind-up requirements, and record the trustees' decision to wind up in minutes. Confirm there are no outstanding issues, such as an in-progress borrowing arrangement, that need to be resolved first.
The steps to wind up
- Deal with members' benefits. Each member's balance must be paid out (where a condition of release is met) or rolled over to another fund. The fund cannot close while it still holds members' money.
- Sell or transfer assets. Convert assets to cash or transfer them out, mindful of any capital gains tax and the cost of selling illiquid assets like property.
- Finalise accounts and audit. Prepare the final financial statements and have the fund audited one last time. The audit is still required in the wind-up year.
- Lodge the final return and pay tax. Lodge the final SMSF annual return, marked as the last, and pay any remaining tax and the ATO levy.
- Close the bank account and notify the ATO. Only after everything is settled, close the fund's bank account and notify the ATO that the fund has wound up.
Order and timing matter
Leave the bank account open until the final tax is paid and any refund received, because closing it too early creates problems. The ATO expects to be notified within a set period after the fund is wound up, so do not let the final administration drift. Given the final-year tax and asset issues, most trustees handle a wind-up with their accountant to make sure nothing is missed.
Frequently asked questions
- What are the steps to wind up an SMSF?
- Decide and minute the wind-up, pay out or roll over members' benefits, sell or transfer assets, complete a final audit, lodge the final annual return and pay any tax, then close the bank account and notify the ATO.
- Do I still need an audit in the wind-up year?
- Yes. A final independent audit is required before lodging the final annual return, even in the year the fund is wound up. The audit cannot be skipped.
- Can I reopen an SMSF after winding it up?
- No. Once a fund is wound up and reported to the ATO, it cannot be reactivated. If you want a fund again later, you would need to establish a new one.
