When should an SMSF be wound up?

Everything an SMSF trustee should know about compliance.

The popularity of SMSFs is understandable. The ability for members of a super fund to have control over their most important retirement asset, and when in pension phase not put up with several layers of bureaucracy to access their funds, are two of the major reasons for this success.

The flexibility and control that an SMSF provides to its members does come with the responsibilities that trustees have to undertake and, depending on how much accountants and other SMSF service providers are used, varying degrees of work spent in administration.

There are a number of events that can require trustees to consider whether they should windup their SMSF. These include:

  • the members are getting older and do not want to spend as much time involved in managing the SMSF, and

  • upon the death of a husband or wife the remaining member does not want to continue with the SMSF due to the workload.

Before the decision is taken to wind up the SMSF members need to weigh up cost and benefits of either keeping the SMSF or rolling the members benefits into another superannuation fund. Also one major consideration, if the members have qualified for an age pension under the old income rules, will be the loss of the grandfathering provisions for the old income test for both the age pension and the Commonwealth Seniors Health Card.

Where members want to reduce the amount of time they spend in administering the fund they should first look at what the cost will be off paying an accountant or service provider to do the work for them. This extra cost for the SMSF may be worthwhile if it reduces the trustees workload and the members retain the flexibility and control that would be lost if their SMSF is wound up.

If the cost of having external service providers outweighs the benefits of keeping the SMSF going a super fund needs to be chosen that will receive the member's account balances. When it comes to cost most SMSF trustees would choose an industry fund over a commercial fund. This reduced cost can however come at the cost of reduced efficiency with regards to member services.

Alternatives to an SMSF

The job of comparing pension accounts offered by different superannuation funds is made extremely difficult because of the different way that fees are charged on member's pensions accounts. The table below, based on a Chant West Pension Apple Check, illustrates the different way funds charge members in pension phase.

Some super funds charge less administration fees and more for investing fees, while others also have adviser fees which make them the most expensive.

Rolling your SMSF into a new fund

Once a new superannuation fund has been chosen, and the decision made to close down your SMSF and transfer to the new super fund, there are number of steps that need to be taken. The most sensible way to transfer to the new super fund will be to do that in one transaction. When not all of the cash is transferred to the fund, and a balance is maintained in the SMSF, members will end up paying two sets of administration fees for no real benefit.

Step 1

The decision to wind up the fund should be taken as early as possible because investments held by the SMSF will need to be converted to cash so that the money can be rolled into the new super fund. This should done while still in pension phase to avoid tax on any capital gains made.

Step 2

Complete the membership application process for the super fund that will be receiving the members balances. At the time of setting up the accumulation account in the new super fund the cash investment option should be chosen.

Step 3

Have a set of accounts prepared for the SMSF to establish what each member's balance is and the components that will be rolled into the new super fund once the pensions have been commuted and the SMSF is in accumulation phase just prior to the funds being transferred.

Step 4

Based on the set of accounts prepared either complete yourself, or have your accountant or administration service provider, a roll over benefit statement. The information required to be completed on the statement includes the receiving fund's details, the members details, a rollover payment details, and your SMSF's details. The statement can be downloaded from the ATO website.

Step 5

A cheque should then be drawn on the SMSF bank account for the balance of each member's account, the rollover benefit statement attached to the cheque, and then both mailed to the postal address for the receiving super fund.

Step 6

After confirmation has been received that the funds have been received by the new super fund a request needs to be made with this fund to roll the accumulation account into a pension account. At the time of setting up the pension account the choice should be made between the different investment options offered by the new super fund.

Step 7

Refer to the section on the site that deals with winding up an SMSF.

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