SMSF trustees looking to wind up a fund from which life insurance premiums are being paid should notify the insurer and ensure no further payments are made before the wind-up commences to enable a smooth shutdown, an SMSF technical specialist has advised.
Heffron client relationship manager Sean Johnston said any proactive maintenance of an SMSF or its assets during shutdown was likely to hinder the closure and could raise questions with the ATO about the activities of the fund.
Speaking during a webinar presented by the firm today, Johnston said any SMSF that was winding up at the end of the current financial year and had an life insurance policy could continue its wind-up activities even if the insurer was unable to deal with the policy cancellation until the next financial year.
“We’ve asked the insurer to cancel this policy. We have submitted all the forms and are not going to pay any more premiums, and the insurer has made it known that 60 days is probably the most likely time frame [to process the cancellation]. Are we still able to wind this fund up?” he said.
“The short answer is yes, as the ATO gives a concession for funds that are winding up to hold certain assets past the effective date of wind-up.
“That’s usually a cash account with a small amount of money in it to keep a bank account open to receive a refund or to pay final fees or pay a final tax liability.”
He said the concessions were not as clear for very small portions of assets and an insurance policy in this context would count as an asset, but the moves to wind up the fund, despite the administrative timings of third parties, should be indicative enough of the intention of the SMSF trustee.
“I don’t have a problem with the fund being wound up at 30 June on that basis and I can’t imagine that the ATO would either,” he said.
“It would be a different story if you had paid premiums post 30 June and the reason for that is you have done something proactive about maintaining an asset.
“You can’t really demonstrate – if you pay this premium – that you have taken all the necessary steps to wind up an SMSF when you have actually done another action.”