Speaking in a recent ASF Audits webinar, ASF Audits head of education Shelley Banton said there are a few important points for SMSF professionals to remember in relation to the process of winding up a fund.
The first step that needs to be taken, explained Ms Banton, is to read the deed to ensure that it allows the trustees to wind up the fund.
“You don’t want to get a disgruntled trustee coming back to bite you at a later point,” she cautioned.
Transfer balance account reporting (TBAR) is another important part of the process, she said.
“Where the member is in pension mode, you’ll obviously need to stop the pension and lodge that final TBAR report which is going to commute that pension at the rollover time,” she explained.
“That becomes really important where members are rolling their balance over to an APRA fund and they’re commencing a pension at the start because if that final TBAR report isn’t lodged, there will be a timing lag that results in a reporting mismatch between the SMSF and the APRA fund and the member’s income may be double counted.”
Ms Banton warned that this makes it virtually impossible for the ATO to correctly calculate the member’s total super balance and they may be issued with an excess transfer balance determination.
“So the timing here is critical,” she warned.
In terms of the fund’s bank account, Ms Banton said there’s no reason to close it down until all the liabilities are settled, refunds are received, rollovers are completed through SuperStream and the ATO has been provided with a letter confirming the windup.
“Similarly you don’t need to cancel the fund’s ABN because once you lodge that annual return with the ATO, the confirmation letter for that windup will state that the ATO has cancelled that ABN so there’s nothing to be done there,” she added.
Ms Banton noted that rollovers as part of the windup of a fund must be completed through SuperStream.
“Most importantly, everything has to be done before that final return is lodged because that triggers the fund being wound up and once the fund is wound up, it can’t be reactivated,” she cautioned.
“So if there’s any other transactions or monies that need to be received afterwards, the fund can’t receive it.”
The other reason why trustees need to lodge that return as soon as possible after the windup date, said Ms Banton, is that employers can still contribute if the members haven’t given their employees the new fund details.
“Obviously, that’s going to throw a spanner in the works where you get unexpected contributions that continue to come into a fund that you’re trying to wind up,” she said.
One of the other issues that tends to arrive, she said, is where the fund wants to wind up but has never used SuperStream because they’ve only ever received related party contributions from employers.
“So these funds effectively need to start from scratch, they need to get an electronic service address (ESA) and they need to get an ABN if they don’t have one, update their SMSF details and go through that whole process,” she explained.
“On the flip side, the Fund may have received contributions from an unrelated employer in the past but they’ve never done a rollover, and the trustees want to wind up the fund. The issue here is that the ESA they’re using probably doesn’t provide for superStream rollovers.”
Where trustees want to change the ESA, Ms Banton said the trustees will need to tell any employers who are contributing before that windup.
Timing issues can be particularly problematic where trustees want to wind up the fund in a hurry, she said.
“Impediments to winding up within the trustee’s timeframe include having to dispose of illiquid assets that may take a while to sell,” she cautioned.
“Where they want to windup in a hurry by the end of the financial year, there are lots of roadblocks which means you can’t do it which effectively means they’re stuck paying fees for another year.”
