Zero balance at closure unnecessary

SMSF zero balance wind-up Heffron Lyn Formica

SMSF practitioners who insist a fund should have a zero balance at wind-up may be creating unnecessary tax issues at the last stage of it closure.

Forcing an SMSF to have zero assets at time of wind-up should be avoided as this position is not required by the ATO and may lead to problems after the fund is closed, a sector specialist has warned.

Heffron head of education and content Lyn Formica explained there is a difference between the legal definition of when an SMSF was able to be wound-up and the point at which the ATO accepts that is the case.

“SMSFs are a trust and like any other trust it won’t cease to exist until there’s no longer something held on trust,” Formica told attendees of a recent online briefing.

“So an SMSF won’t cease to exist until we have nothing held on trust for a superannuation fund which means we’re looking for a balance sheet that has no assets, no liabilities, no member benefits, and in that particular situation the fund would be considered to be wound up.”

While this was an ideal situation, Formica noted most funds being closed will still have some cash on the balance sheet as well as some unpaid expenses and benefits to be paid out before closure and this is acceptable to the ATO.

“What we’re looking for is the SMSF to be materially wound up. The ATO is mindful of the fact there will be a balance in the SMSF’s bank account on lodgement of the final annual return and that money is to pay final costs and tax, so it is not expecting a zero balance bank account,” she said.

“On a balance sheet with a little bit of cash, some payables and a member benefit, I would consider that fund to be wound up presuming those amounts are cleared shortly after the final SMSF annual return is lodged.”

Formica acknowledged some SMSF auditors preferred a zero balance on wind-up and this demand will make the process more complicated.

“If your auditor is not comfortable with anything other than a zero balance sheet, that is every single figure being zero, then it’s going to be harder to wind up the fund.

“You will have to estimate the tax position for the fund and make a call as to what the refund or the tax payable is going to be and then rely upon those estimates to be able to pay the tax early.”

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital