Winding up a Self-Managed Super Fund (SMSF) is a process that requires careful planning, clear communication, and a solid understanding of your trustee obligations. Whether you’re closing a fund due to changes in personal circumstances, the cost of maintaining it, or the passing of a member, it’s essential to manage the wind-up process thoroughly and in line with regulatory requirements. This guide outlines the key considerations and practical steps to help you wind up your SMSF smoothly and in line with regulatory expectations.

Why You Might Need to Wind Up a SMSF

There are several reasons why a fund may need to be wound up, including:

• The members have insufficient assets to justify the cost of having an SMSF.
• Running the SMSF has become too onerous.
• The last remaining member has died.

Key Obligations When Closing Your SMSF

While the circumstances surrounding the wind-up of an SMSF may vary, the process is generally the same. It essentially involves selling all the investments in the fund to convert them into cash and then using that money to pay off any debts and liabilities; with the remaining balance being either paid out to the members as a lump sum benefit or rolled across into their new super fund. 

Winding up could potentially be a lengthy process, especially if it’s necessary to wait until assets, such as property, are sold so that all liabilities can be settled. 

How to Wind Up an SMSF: Step-by-Step Guide

Step 1 – Trustees & Members to agree to wind up

• Convene a trustee meeting to formally decide on winding up
• Record the decision in the minutes and set a timetable
• Notify the ATO and inform fund members

Step 2 – Sell investments

All investments and assets need to be sold in an orderly & appropriate manner.  This may require time to account for market fluctuations and/or the practicalities involved with the sale of particular types of assets eg property.

Step 3 – Managing Liabilities and Final Payments

Trustees must allocate the initial tranche of sale proceeds to any liabilities related to administration and wind-up costs. Taxes and final expenses must also be paid, including insurance premiums and outstanding professional services related to the fund (accountants, auditors and financial advisers). Only once these are settled can member benefits be processed.

Step 4 – What Happens to Member Benefits During a Wind-Up?

If the fund is solvent, the next priority is member benefits—amounts allocated must be at least their minimum guaranteed benefits. If the fund is insolvent (eg investments have been sold at a loss), members still receive the next priority, but their entitlement is calculated as a proportion of the remaining assets.

The members can choose to have their entitlements paid out as a lump sum (if they have met a condition of release); or they can have the money rolled over into their new super fund.

Step 5 – Final Reporting and Closing the SMSF Bank Account

Trustees should complete the following:

• Final fund accounts and audit
• Final annual return as required by the ATO 
• Final tax return for the fund (and payment of any debt owing)

It’s recommended to keep the SMSF’s bank account open for as long as necessary to process delayed receipts and ensure all funds are distributed correctly.

Final Thoughts: Make the Process Simpler with Expert Guidance

The SIS Regulations do not prescribe exact steps for winding up a fund, and most trust deeds are similarly vague. The ATO provides a helpful guide for further support but since winding up an SMSF is a significant undertaking we strongly recommended that you use the assistance of a professional to ensure steps are followed correctly.  With clear planning, open communication, and professional support, trustees can navigate the process with confidence and clarity. Whether you’re stepping away from managing a fund due to shifting life circumstances or evolving financial goals, it’s essential to follow a methodical approach to ensure compliance and fairness for all members. 

If you’re unsure about where to start or need help managing the finer details, our team at DFK Everalls is here to help you make informed decisions and transition smoothly—so you can focus on what’s next with peace of mind.