Winding-up SMSFs can be hard to do

SMSFs australian taxation office

29 August 2011
| By Damon Taylor |
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 Whether it's due to a payout of all benefits or to the changed circumstances of the trustees, the natural end to a self-managed super fund (SMSF) comes in its wind-up. But it is a process that requires a great deal of care and attention to detail, according to Peter Hogan, Principal of Plaza Financial.

"Generally, what people do is aim to wind-up the fund by 30 June," he said. "And that's because as soon as you've got any assets left in the fund and you roll into the next financial year, then you've got another annual return and another set of accounts, and so on."

"You really want to get it all tidied up before financial year's end," Hogan said.

Another issue to be aware of, according to Hogan, lies in how readily realisable the fund's assets are. 

"If you've got property or something that's not going to be instantly realisable within a couple of days - so something other than managed funds and shares - then that needs to be taken into account as well," he said. "It could significantly impact when you'll be able to wind-up the fund and when you're going to get the proceeds for those things."

"Even something like property where yes, you might have your contract of sale and it might be dated before 30 June - you may not actually get the proceeds until afterwards," Hogan said.

The final key issue highlighted by Hogan was the question of whether the fund's trustees were going to sell the assets or whether the members wanted to retain those assets permanently. 

"So do we do an in-specie transfer of the assets or do we sell them?" asked Hogan. "That's another question you might want to ask yourself, and in that situation, valuations become important as well."

"Most people know that an SMSF is allowed to transfer or sell assets to anyone - even related parties," he said. "But if it is a related party transaction, and you haven't got a readily available market value, it's pretty important that you get an independent valuation."

"You want to make sure that the value you're transferring it at is one that can be backed to avoid any ATO [Australian Taxation Office] dispute," Hogan said.

But overall, Hogan said SMSF wind-ups were about dotting the i's and crossing the t's.

"It's definitely a process that trustees need assistance with, and not one they're going to be able to do off their own bat," he said. "And it's important; when you look at those net numbers that get reported each year and when they say 2,500 funds a month are being set up - in fact, it's more like 3,000 funds being set up and 600 to 1,000 funds being wound up."

"It's something that gets done regularly and for all sorts of reasons, but it's also not as well understood as it should be," Hogan said.

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