SMSFs only need to be wound up under one condition, despite trustees often believing their circumstances might require this action to be taken, a technical expert has claimed.
“When we say: ‘When must a self-managed super fund be wound up?’ – basically when the ATO tells you to. So under all other circumstances, because we’re dealing with an indefinitely continuing fund, the structure can remain in place even if we’re adding or removing members and doing other things,” SuperGuardian education manager Tim Miller said.
“But if the ATO directs you to wind up the fund, then that’s when the fund must be wound up.”
Miller pointed out circumstances in which an order like this is issued seem to be extremely rare.
“In my experience I’ve never come across [a situation where] compliance issues have been so terrible that the ATO has given a direction to wind the fund up. I know it’s existed and I’ve heard others talk about it, but it’s not something that happens on a common basis,” he said.
According to Miller, it means the majority of decisions to wind up an SMSF will be made consciously by the trustees themselves and he pointed out there are a number of common reasons for taking this action.
“Some reasons that we see for winding up funds is all the members have left the fund and that all the benefits have been paid out of the fund, that it no longer meets the needs of the [trustees] or they don’t have the time, skill and knowledge to manage [the fund], it’s not cost-effective or the members decide to relocate overseas,” he noted.
Another reason many funds are closed down is in the event of a relationship split often because the individual member balances can no longer justify maintaining an SMSF, but this dynamic may begin to change as the trend of administration fees reducing looks set to continue, he said.
He also warned the length of time it takes to wind up an SMSF is a critical factor trustees need to understand.
