What Happens When You Wind Up an SMSF?
Winding up an SMSF is a relatively complicated process to ensure that the members have a smooth exit at the end of their SMSF Journey. The guide below will help you understand the process that needs to be gone through based on different types of assets held by the fund.
How many SMSFs are wound up?
The ATO statistics for the June quarter 2025 have recently come out highlighting the significant decrease in annual wind up of SMSFs from 15,146 in 2023/24 to 3,531 in 2024/25. As there is a lag in the information the ATO source from SMSF annual return lodgements the June 2025 figures will increase after the final lodgement of the 2024/25 financial year annual returns.
However, the statistics do clearly show the quarterly wind ups during the 2024/25 financial year are significantly less than the same quarters in previous years. Whilst new SMSFs continue to grow the number of exits are declining. The total assets held by SMSF members exceed $1trillion.
When would you wind up your SMSF?
Most SMSFs are closed in the June quarter to avoid another year of admin and audit fees, but with proper planning, the end-of-June rush can be avoided. Careful preparation helps prevent problems that arise from hurried wind ups.
Firstly, should your SMSF be wound up
An SMSF is a special trust which is not subject to the law of perpetuities so the fund can continue forever. Except for South Australia and Queensland trusts are subject to the rule of perpetuities which means they have a predetermined timeframe which is generally 80 years, but each state and territory may have a different variation.
There are many reasons to wind up an SMSF. It may be financially unviable, or the members are no longer interested in operating their own fund or have become physically or mentally unable to continue with an SMSF. Other reasons include members moving overseas permanently, relationship breakdowns or the death of a member or trustee.
However, now that SMSFs can have 6 members they can more easily act as an intergenerational vehicle allowing the family business premises or farm to be passed on to future generations. Income tax losses or quarantined capital losses can be passed on and not lost when mum and dad pass on and other family members can be introduced to the fund. Planning is crucial to ensure the family SMSF is a suitable vehicle meeting all of the member’s wishes and the legal and compliance requirements continue to be met.
What you need to consider when winding up your SMSF
The fund’s trust deed must always be reviewed to determine the process to wind up the fund. The ATO have a very helpful guide “How to wind up an SMSF”.
We now highlight some issues for consideration when winding up your SMSF.
Final tax calculation
Many SMSFs have investment platforms or managed funds. The tax statements are generally not available until September at the earliest after the end of the financial year being wound up. This can make it difficult to calculate the final tax payment and the final member benefits to be paid. A tax refund may delay closing the fund’s bank account until the final annual return is lodged and the tax refund received.
Dividend reinvestment schemes
A share portfolio may include a dividend reinvestment scheme (DRP) where dividends are reinvested into more shares. There may be a cash residual balance or the DRP is not considered, and shares are allocated after the fund is wound up. This may be avoided by cancelling it in advance of the fund closure.
Selling or transferring fund assets to a member
Fund assets transferred or sold to a member must be at market value. The asset may be sold for cash or transferred in-specie as a lump sum, but not as a pension payment. The member must satisfy a condition of release such as reaching the age of 65 or retiring after they turn 60 to receive a lump sum payment.
Liquidating difficult or lumpy assets
The following assets may be difficult to liquidate quickly:
- property may take several months to sell
- pay out the borrowings in relation to a limited recourse borrowing arrangement especially problematic if the sale of the underlying property does not cover the outstanding loan amount
- units in a related party unit trust
- units in an unrelated but private unit trust where there are limited buyers
- investments in managed investment schemes gone bad can result in “frozen assets” which take a long time to resolve before a final payment can be made
- previously listed shares which have been suspended from trading but not yet declared by the liquidator as “worthless”
- breaking a term deposit early
GST obligations
GST may apply to the disposal of property owned by an SMSF regardless of whether it is an in-specie transfer of property or a cash sale.
There is no GST on the sale of residential property except if it is new residential property such as a new residential development not used for commercial purposes and not created due to substantial renovations. An SMSF may be required to withhold GST on the disposal of new residential property.
GST applies when an SMSF is registered for GST or otherwise required to be registered i.e. when GST turnover for an SMSF is $75,000 or more.
The amount of GST payable when an SMSF registered for GST disposes of a taxable supply such as business premises depends on whether the margin scheme, going concern or full GST applies.
Hint – Professional advice should be obtained from a registered tax agent to determine if your SMSF must withhold GST on the disposal of new residential property as the law is complex.
Rollovers and SuperStream
An SMSF is required to use SuperStream to rollover super money to another complying fund. There are some exceptions the most relevant being an in-specie rollover. A fund must be SuperStream compliant in order to initiate a member’s rollover to another fund.
What can you do if your SMSF cannot be wound up by 30th June?
Consider the following:
- paying out or rolling over the majority of the members benefits and when the final tax or assets are sold a second final payment or transfer can be made in the next financial year
- restructuring the trustees i.e. replacing an incapacitated trustee with their attorney under an “Enduring Power of Attorney” or appointing a family member as an individual trustee when there is a sole surviving member due to the death of the other member
- the ATO may allow the fund to be wound up at 30th June even though it still has a minor bank account balance so that an expected tax refund can be deposited after 30th June
Special consideration when winding up a pension fund
There are special considerations when winding up a fund which is in pension mode.
Segregation of pensions
To ensure full tax exemption, segregated pension assets (particularly lumpy assets like property) should be sold before commuting or stopping the pension.
However, if both the property disposal and pension commutation occur near year-end and the trustee can elect to use the actuarial method to calculate the fund’s exempt income for the entire year, the impact on taxable income may be minimal.
Making minimum pension payment
A common strategy used by funds in 100% pension mode is to partially commute and transfer benefits to another complying fund in order to commence a new pension. The SMSF retains a small cash balance to meet final liabilities. This approach allows the pension to continue as segregated and fully tax exempt. It is important to ensure that the required pension minimum has been met, as there is no apportionment if the pension is not fully commuted. Additionally, the member is required to meet an apportioned pension minimum payment in the new fund.