Compliance, SMSF

Barrier low to close unused funds

SMSF Wind-up Heffron Lyn Formica

SMSF trustees who have not actually used their fund can wind it up via a simple process, but will be questioned if they wish to start a new one in the future.

People who set up an SMSF but do nothing with it and wish to close it at the end of the financial year will not be required to take the same steps as an operating fund, but the closure will be hard to reverse, an SMSF specialist has noted.

Heffron head of education and content Lyn Formica said while the process to wind up an operating SMSF had a number of specific steps, none of these applied to a fund that was never in use.

“If you have got a fund that has never had any assets, never had any money in the bank account, never had a rollover in and no one has ever made any contributions to that fund, it can’t be wound up, simply for the fact that it never existed in the first place,” Formica said during an online briefing to SMSF practitioners today.

“For that type of fund, which is never going to be used, all we need to do is cancel the fund’s registration.”

She said the ATO had spelt out the process on its website and trustees and tax agents only had to supply the SMSF’s name and tax file number or Australian business number with the cancellation request.

“Once you cancel that fund’s registration, it is going to cease to exist on the ATO records and, legally, it never existed in the first place because it never had any assets,” she said.

She noted any decision to wind up an SMSF, including one that never operated, was not reversible and moves to open a new fund would come under ATO scrutiny.

“If we have somebody who winds up their SMSF and then wants to have a fund again in the future, we may have some problems,” she said.

“There is no law that says someone who has wound up their SMSF can’t have another one again in the future, but when the trustee of the new fund goes to apply for registration with the ATO, it’s likely it is going to ask some questions as to if you had a fund before, why do you want another one.

“In this situation it might take a little bit of extra time to go through that new registration process.”

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