Elizabeth Wang
In essence a self-managed superannuation fund is a special form of trust and satisfies general trust law as the assets of the fund are held on trust by a trustee to provide retirement or death benefits for its members, with those members being the beneficiaries.
A superannuation fund can be wound up voluntarily or intentionally and the rules relating to winding up a superannuation fund are the same for any other trust.
Reasons why a superannuation fund may be wound up voluntarily include
- circumstances where all the members of the fund have left the fund or
- where all the assets of the fund have been paid out of the fund, either to the members as benefits or by rolling the assets over to another regulated superannuation fund, or
- where there has been a breakdown of a relationship between the members (including divorce) which may affect the ability of the members to effectively undertake their trustee/member obligations,
- where the members have relocated overseas indefinitely and the fund no longer satisfies the central management and control test, or
- where through age or infirmity the members are unable to effectively manage the fund.
A superannuation fund can also be intentionally wound up when directed by the ATO in circumstances where the superannuation fund has breached significant compliance issues.
To wind up a self-managed superannuation fund, the trustee will need to:
- notify the ATO within 28 days;
- deal with all assets of the fund so that the fund has no assets left;
- arrange a final audit of the fund; and
- complete the legal reporting responsibilities including the lodging of a fund annual return and finalising any outstanding tax liabilities.
Although, winding up an SMSF is a formal process that the SMSF can voluntarily and intentionally undertake, the trustee must be careful not to allow the superannuation fund to inadvertently have no assets at any time so as to immediately vest the trust unintentionally because a trust ceases immediately and automatically where there is no asset upon which it can operate.
The consequences of accidental vesting could be catastrophic from a tax and compliance viewpoint with the full marginal rate of tax being levied against whatever assets the fund should have retained and even criminal charges for conducting an early release scheme.
It is important to note that once a trust has vested it cannot be reactivated in a similar way to reinstating a de-registered company.
Please do not hesitate to contact our office for more information on winding up a fund or if you require assistance with preparing documentation to record the trustee’s decision to wind up a fund.
By Elizabeth Wang, Solicitor