Winding up an SMSF is, in many instances, a far bigger decision than establishing one because you are no longer dealing with a blank canvas and are now left with deconstructing many years’ worth of work.
One of the most important elements of winding up a fund, regardless of where you sit in the superannuation lifecycle, is time. This means you need to have options with regards to all the moving parts associated with being a superannuation member while you start the process of winding up.
What is critical in this and all decisions you are about to make is: what are you doing with your superannuation benefits? If you are still accumulating super and are unable to access your benefits, then you need to contemplate where future contributions are going to be paid to. If you receive employer contributions, do you want to continue to receive contributions in the SMSF right up until its final days, or do you want to have your contributions directed to your new superannuation fund as early as possible? I would suggest that with contributions, the earlier they are redirected the better, to minimise the risk of last-minute amounts resulting in recalculations of taxation liabilities and also it gives your employer time to adjust.
At the other end of the lifecycle if you are receiving a pension, then you may want to continue to make pension payments from your SMSF for as long as possible to ensure your fund retains access to its exempt pension income deduction. This will be useful, as you sell down assets to liquidate your member balance as it will provide a taxation benefit that would not otherwise be afforded if you elect to stop your pension early. Of course this issue, about when to stop your pension and when to sell the assets, is also relevant if you are rolling your pension to another fund.
To execute a rollover, you must commute (stop) the pension, roll it over and recommence it in the next fund. Some funds will allow you to transfer the assets from your SMSF to their product via an in-specie transfer. If all the assets are transferred in one hit, from an SMSF perspective it may be determined that your pension has ceased immediately before those assets are transferred resulting in a potential capital gains tax liability on the sale. Maybe it’s a better option to progressively sell assets while entitled to the pension exemption and then rollover cash. Everyone’s fund is going to be different.
Possibly the most significant reason why time is your most valued possession with regards to the wind up process is the investments of the SMSF. If you attempt to rush the wind-up process and you have a significant pool of assets, chances are you will run into problems. Trying to wind up a fund in June that still holds managed funds will mean you’ve got to take into consideration the distributions that are likely to hit in July or perhaps August, plus wait for the tax statements.
If you give yourself longer then you can identify income patterns and more accurately reflect the member balance to be rolled over. Also, are there any assets you are wanting to retain? If the answer is 'yes' how will you achieve that? Will you acquire the assets or are you entitled to a benefit payment so will in-specie it. Make sure the ownership reflects the actual owner and that the valuations reflect arm’s length transactions.
If, of course, you are winding up your fund to pay a final benefit out to yourself and or other members, then the timing is less of an issue but you still want to get you calculations right and have satisfied the appropriate condition of release.
As a final point, make a list of all the administrative things that need to be done. Notify the ATO, wind up the corporate trustee, cancel the insurance and buy a nice box to store all your records in for the next five to 10 years.