Johnston said there are several assets that can not be held in an SMSF, including direct property in a public fund offer.
“So, if you’re finished with your direct property, or you’ve finished with your crypto investments, or whatever that happens to be, you may not have a use for the SMSF any longer,” he said.
“And if you’re just going into cash shares, managed funds, you might be able to do that somewhere more cost-effective, more useful, potentially a little bit simpler, depending on exactly how it works for you.”
There are several reasons for why a trustee may decide to wind-up their SMSF, he said including low and declining members balances, the fact it may not now meet the needs of its members, it’s become too costly or it is “not worth the extra effort”.
“Obviously, those sales of those key SMSF-only assets, are a big driver of wind-ups and relationship breakdowns are often tied to this and other reasons for winding up. They all can make funds non-viable going forward, and sometimes it’s just a person who’s left with the fund who wasn’t particularly interested in it,” he said.
“Then there are those that don’t want to have to deal with the fund as administrators, or they have had significant breaches of the SIS Act; it’s often something that plays really nicely to demonstrate to the ATO that you’re no longer a risk to the superannuation system.”
Johnston said subsequently another consideration when thinking about winding up an SMSF regards disqualified trustees under the SIS Act.
“If we have disqualified trustees, we really don’t have an out for managing a fund going forward, so you are put into a situation where either the disqualified person has to leave the fund, or if it’s multiple people that have been disqualified, the fund may have to wind up as a natural progression,” he said.
“There is also another reason for winding up an SMSF and that is a trustee moving overseas. There’s that little kicker with trustees moving overseas that you might end up with a non-resident fund, and nobody wants to do that because of the tax consequences.”
Johnston warned that advising a trustee to wind up a fund can only be done by a licensed financial adviser.
“When I say you can’t provide advice, that doesn’t mean you can’t tell people how the process works, how the mechanics work, what they need to do to comply with SuperStream, how a process looks in practice,” he said.
“What you can’t do is say to them, ‘I think you should roll over, I think you should wind up’. Those are things that you can’t say unless you have a financial planning license. Also, don’t issue them with a statement of advice, or potentially a record of advice.
“Be very careful when you’re communicating to clients around this, and remember, don’t recommend those things. You might have an open and frank discussion with them about the mechanics, but definitely don’t provide that advice.”
