Investments, Superannuation

Asset recognition key in wind-ups

SMSF assets wind-up

The complexity and timeframe involved with an SMSF wind-up can be impacted by the types of assets held in the fund and their inherent characteristics.

The type of assets held within an SMSF needs to be acknowledged when looking toward a fund wind-up as they will determine the complexity and the length of time that will be involved in the process, an SMSF specialist practitioner has said.

In alerting advisers to make this consideration, Heffron senior SMSF technical specialist Annie Dawson identified certain areas that can be identified as troublesome straight away.

“Clients who have term deposits with long maturity dates [might see the process push at least into the next financial year]. Obviously, [if] the fund still has that term deposit, [it will not be able to be wound up] until the principal has been repaid,” Dawson said.

Further, she pointed out certain assets can complicate the wind-up of an SMSF if the action is being undertaken due to the death of a member.

“We have seen circumstances where a fund had trouble winding up because the type of investment [it] had required the investor to be a sophisticated investor and the beneficiaries [upon the death of the member] who were wanting to wind up the fund … didn’t qualify as sophisticated investors,” she revealed.

“There was a window as well as to when they were able to deal with the investment. So that certainly impeded their ability to wind up the fund because they had to wait for one of these windows to open [before they could] deal with the asset.”

According to Dawson, unlisted investments can also be troublesome when winding up an SMSF due to challenges in relation to the redemption of those assets.

To illustrate this point, she gave the example of an SMSF that has an investment in an unrelated unit trust with one other party, but wants to exit this arrangement to perhaps facilitate the wind-up of the fund.

In this situation the remaining party in the trust cannot just buy out the SMSF’s share as they cannot be the sole unitholder in the trust, she noted.

This means the SMSF will have to sell its units to an unrelated party and this will add to the amount of time involved in the fund wind-up, she said.

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