SMSF trustees looking to wind up their fund do not have to reduce its balance sheet to zero, with the ATO accepting a fund can be materially wound up despite it retaining a sizeable quantity of cash, according to an SMSF technical expert.
Heffron head of education and content Lyn Formica said there was a range of views as to when an SMSF was considered to be wound up, but it was important to consider what monies a fund needed to hold to conclude the wind-up process.
“Like any superannuation fund, an SMSF is a trust and a trust will cease to exist where there’s no longer anything held on trust,” Formica said during an online briefing today.
“An SMSF won’t be wound up until we no longer have any assets, liabilities or member benefits, so we’re looking for a situation where there’s no longer anything held on trust for that superannuation fund.”
Formica added that a result of this is some consider an SMSF should have a balance sheet of zero in regards to its assets, liabilities and member benefits, but noted some funds in the wind-up phase still hold cash, may have a tax refund owing to the fund, which needs to be passed onto fund members, and expenses such as audit and accounting fees still to be paid.
“Is this fund wound up? The way I look at it is maybe, but what I’m really looking for is a fund that has been materially wound up,” she said.
“The ATO expects there will still be money in the SMSF’s bank account on lodgement of the final SMSF return to be able to pay final costs like the audit and the final tax bill if there happens to be one.”
She added this meant while the fund could retain some assets, they could not be any form of investments but only cash and some receivable and payable items, and in that case the fund would be considered to be materially wound up.
“The advantage of treating a fund as materially wound up is it allows us to wait for final tax statements, calculate the actual tax liability for this fund and pay the actual tax,” she said.
She noted that if the fund’s auditor was not looking for a zero balance sheet, the trustees would have to make estimates about the fund’s future tax bill.
“In this case you would have to go with a conservative approach here because you don’t want to be claiming money that you’re not entitled to,” she said.