We think SMSF’s are fantastic and if you are reading this you probably do too. The more of them we have the more we are Accounting, Co-ordinating Audits, Arranging Legal documents or requesting Actuarial Certificates and let’s be honest – the bigger we grow our businesses. So, yes, we think they are great but only if they are serving the right purpose for the members of the SMSF. Like anything in life, the journey of the SMSF evolves and changes over time. Life events lead to changes in circumstances, and this means that the suitability of an SMSF for some members may change too and it is our role as professionals to ensure that we are not looking at SMSF’s simply as numbers in our bank accounts.
Changing Circumstances
There are a number of avenues that lead Australians into establishing an SMSF. They either get recommended via a Financial Adviser or friends have told them how great they are. There are also far too many occurrences of SMSF Property businesses, Real Estate Agents and Unlicenced Accountants encouraging this structure. However, they are established, right or wrong, there are circumstances where the suitability of the structure may need to be revisited:
Change in personal circumstances – such as a divorce or a death
Liquidity issues – the SMSF is unable to meet its financial obligations
No members – all members have rolled their balances out of the SMSF
Trustee disputes – agreement on how the SMSF is managed cannot be found
Residency – the Trustees of the SMSF no longer meet the residency tests
Uncertainty – the members of the SMSF are not certain as to why they have an SMSF
More recently of concern is the number of SMSF’s that remain with outstanding lodgement obligations. This could be an indicator that the Trustees may not be suited to this structure and their retirement savings may be better managed elsewhere. A successful SMSF requires engagement by the Trustees with support from appropriately experience professionals, and between them there should be a regular review to ensure that an SMSF is still fit for purpose.
What if an SMSF is longer the plan?
Our approach to SMSF’s has always been to avoid complex outcomes. This means when we take over an SMSF or establish an SMSF for an Adviser, we always have the end in mind. If the SMSF is established correctly and all documents are in place, winding up the fund shouldn’t throw up any surprises. This is particularly important if the change in circumstances prompting the wind up is a death.
So, typically the wind-up process involves:
The Trustee, with the help of their adviser:
determining what is to happen with the existing investments – are they to be sold or transferred out in-specie
determining what is to happen with existing insurance policies
determining what is to happen to the member balances – are they being rolled over to another superannuation fund or are they able to be paid out as a pension or lump sum
taking the necessary steps to deal with the choices above
deciding on a wind up date
determining any interest due to be received up to the wind up date and also bank fees payable
providing information so the wind up accounts and SMSF Annual Return can be prepared
making any final expense and tax payments
making final member account payments or transfers to close the bank account
The SMSF Accountant/Administrator helping to:
determine any expense and tax payments to be made
arrange paperwork for pension commutations, if applicable
record any rollovers via SuperStream or arrange lump sum paperwork
arrange the audit of the wind up accounts and lodgement of the final SMSF Annual Return
arrange deregistration of the corporate trustee and notification to ASIC, if applicable
Common issues to look out for
The above seems relatively simple but things can go wrong in the process that can create unwanted outcomes. The introduction of SuperStream has also made the SMSF wind up process a lot more complex and it is even more important that Trustees get guidance from a professional. Some issues that we have encountered during the wind up process are:
delays with EFT rollovers resulting in the bank account not being closed when it was planned to be
delays with off market transfers to larger superannuation funds
lack of understanding of the documents required to properly deal with pension accounts
lack of understanding of the SuperStream requirements
lack of understanding that the final tax position needs to be determined and the final tax paid before the bank account is closed
For whatever reason you have come to the decision to wind up your SMSF, care should be taken to ensure that it is done correctly. Even if you have run your own SMSF without much help from a professional, we recommend that you get guidance during the wind up process.
Keep It Simple Super provides tailored Australian based SMSF services to Financial Advisers and Accountants that achieve best practice compliance and mutual benefit through simple, hassle-free solutions. We help Financial Advisers and Accountants grow their business with the confidence that their Self- Managed Super Funds are compliant and lodged on time. Talk to us before winding up a fund for your client – https://keepitsimplesuper.com.au/contact/