Closing an SMSF without loose ends.

Not necessarily. Two options exist for distributing fund assets at wind-up: realisation (sell, distribute or roll out the cash) or in-specie transfer (transfer the asset itself to a member, or to a rollover fund that accepts the asset type).

In-specie transfers avoid the transaction cost of selling but bring their own complications. The transfer is a CGT event for the SMSF (CGT event A1, s104-10 ITAA 1997). The fund recognises a gain or loss at market value, even though no cash changes hands. There’s also stamp duty in some states for property, and the receiving fund (or member) needs to be ready to accept the asset. Which approach suits your circumstances is a personal-advice question. Speak to a licensed financial adviser before deciding.

Stamp duty on the in-specie transfer of property out of an SMSF is state-specific and turns on the relationship between the fund and the recipient. Most states offer concessional or exempt treatment where the property transfers from the fund to a member receiving their entitlement, but the conditions are narrow and the documentation is exacting. The cost of getting it wrong (full ad valorem duty on the property’s value, payable retrospectively) substantially exceeds the cost of getting it right.

Before any in-specie property transfer goes ahead, we engage a state-relevant stamp duty specialist or solicitor. We don’t act on stamp duty matters ourselves.

A wind-up with an outstanding limited recourse borrowing arrangement is more involved but possible. The LRBA needs to be discharged before the asset can leave the bare trust, either by repaying the loan (from fund liquid balance or from the asset sale proceeds) or by refinancing the loan outside the SMSF structure.

The bare trust then formally winds up after the loan discharge. The asset can then be sold from the fund directly, or transferred in-specie per the standard wind-up process. Timing and tax-effectiveness of the LRBA discharge sit alongside the broader wind-up strategy. We coordinate with the fund’s adviser to sequence them correctly.

Treatment depends on each member’s circumstances: age, whether they’ve met a condition of release, whether they’re rolling to another super fund or taking a cash benefit, and the components of the benefit (tax-free, taxable, untaxed element).

Members under 60 generally can’t access super at all without meeting a specific early condition of release (permanent incapacity, severe financial hardship, terminal medical condition, compassionate grounds). Where access is permitted, the taxed element of the taxable component is taxed at a maximum 22% (20% plus Medicare). Members aged 60 and over generally take tax-free lump sums from a taxed source, which is the typical SMSF case. Rollovers between super funds don’t trigger personal tax.

Where a death benefit is paid to a non-dependant beneficiary, the taxed element of the taxable component attracts tax in the recipient’s hands at 17% (15% plus Medicare). Specifics turn on each member’s facts. We work alongside the adviser to ensure each member’s benefit is treated correctly in the final return.

A member’s pension needs to be formally commuted before the wind-up can complete. The commutation converts the remaining pension balance back to accumulation phase, from which it can be rolled to another super fund or paid out as a benefit (subject to age and condition of release).

One trap to know about: where a pension is to be fully commuted, the pro-rata minimum pension payment for the final year must be made before the commutation. Skip it, and the income stream is treated as having ceased at the start of the financial year, and the exempt current pension income (ECPI) exemption is denied for the whole year.

A commutation has further tax implications. The ECPI exemption ceases at commutation and the final-year ECPI calculation needs to be apportioned correctly. Where the commuted pension is in retirement phase, a Transfer Balance Account Report (TBAR) is lodged to record the commutation debit against the member’s transfer balance account, whether the commuted amount is paid in cash or rolled over.

If a member is winding up the fund without rolling into another pension, the broader question of pension continuity belongs with the member’s adviser. We handle the commutation paperwork and the final-year accounting.

Death of a member doesn’t automatically trigger a wind-up. Under section 17A(4) of the SIS Act, an SMSF has a six-month grace period to regularise its trustee structure following the death or loss of capacity of a member. Surviving members can continue the fund (with single-member rules applying if it’s now a one-person fund), or wind it up if continuation isn’t viable.

Death benefit distribution itself is handled as a benefit payment to the deceased member’s beneficiary (typically via a binding death benefit nomination or trustee discretion), and then either the fund continues with the remaining member or proceeds to wind-up. Where appropriate, we prepare the death benefit documentation and the wind-up paperwork in parallel. See death benefit documentation for the document-only path.

Most wind-ups have at least one compliance issue to clear. It’s often part of why the trustees decide to close the fund. The ATO won’t process a wind-up while unresolved breaches sit on the fund’s record, so the sequence becomes: identify the breaches; work with the SMSF auditor on any required Auditor/Actuary Contravention Report (the auditor lodges the ACR with the ATO under s129 SIS Act); prepare the rectification plan on the trustee side; respond to any ATO engagement; close out the outstanding years’ lodgements; proceed to final audit and wind-up.

We handle the administration through that sequence. Legal representation, if the ATO proceeds to penalty action, is excluded from scope and referred to a specialist SMSF lawyer.

Non-arm’s length income (NALI) and non-arm’s length expenses (NALE) issues (where the fund has earned income from a related party at favourable terms, or paid less than market value for services to itself) need to be settled before the wind-up can proceed.

NALI is taxed in the SMSF at the top marginal rate (45%) under s295-550 of the ITAA 1997. The 2024 amendments to that section softened the treatment of general NALE (administrative and operating expenses): the NALI consequence is now capped at twice the shortfall (the difference between the arm’s length expense and what the fund actually paid). But specific NALE, expenditure tied to a particular asset, has no equivalent cap and can taint that asset’s income and capital gains for the life of the asset.

Where NALI or NALE is identified at engagement, we work with the fund’s adviser to scope the rectification (typically a revised market-rate position, retrospectively documented and supported by a voluntary disclosure to the ATO where warranted), or to confirm the fund’s position is defensible. The wind-up then proceeds with the affected years’ tax treated correctly in the final return.

A clean wind-up from a fund that’s current on lodgements and free of compliance issues typically takes 3–6 months. The binding constraint is the final audit (4–6 weeks once we hand it across) and the ATO’s confirmation timeline (typically 4–8 weeks after lodgement of the final return, though it can run longer at peak periods).

A wind-up with multiple outstanding years and compliance issues to clear typically takes 9–18 months. Each outstanding year needs its own financial statements, audit and tax return before the wind-up sequence can begin.