Assets must be held during fund wind-up

SMSF assets

An SMSF marked for wind-up must retain some assets to ensure the process can be completed properly without any adverse consequences arising.

Trustees have been advised to ensure some assets held within an SMSF remain in place while winding up a fund to allow the process to be completed as a trust ceases to operate if there are no assets in place to sustain it.

Townsend Business and Corporate Lawyers solicitor Elizabeth Wang said disposing of all assets will lead to the immediate vesting of a trust, which in turn will have adverse consequences for the trustee.

“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,” Wang warned.

She further noted a trust that has vested cannot reverse the process, unlike reinstating a deregistered company.

Apart from ensuring some assets are retained by the SMSF during the winding up process, she advised trustees must notify the ATO within 28 days of the fund being closed, deal with all assets so the SMSF eventually has no assets left, arrange a final audit for the fund, and complete all legal responsibilities, such as finalising any tax liabilities and lodging the fund’s final annual return.

She acknowledged there are numerous reasons why an SMSF might be wound up voluntarily. These include circumstances where all members of the fund have departed, all benefits have been paid out or transferred out of the SMSF and if the trustees no longer have the capacity to run their own retirement savings vehicle.

“[It may also be decided to close an SMSF] 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, [and] where the members have relocated overseas indefinitely and the fund no longer satisfies the central management and control test,” Wang added.

She pointed out the ATO can order an SMSF to be wound up where the trustees have been found to be in serious breach of their compliance obligations.

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