SMSFs: What are the rules about leaving?
Published 28 Jun 2019
Getting into an SMSF is much more straight forward than leaving one. You must comply with the rules of the fund and various legal obligations. It's wise to prepare an exit strategy before you even join.
Why do people leave an SMSF?
Investors may want to leave an SMSF for many reasons, including:
- They no longer want the responsibility of managing the fund.
- Higher returns are available in another type of fund.
- They have moved overseas.
- Relationships have broken down, or members are disagreeing on the best investment strategy.
Members may also look at closing the fund altogether when:
- There is not enough money left in the fund to cover associated costs.
- All members have received their retirement savings.
- Every member has moved to another fund, or has passed away.
What's involved in leaving an SMSF?
Leaving an SMSF is not as simple as changing your mind. There are a number of legal rules you must follow, as well as points to keep in mind to ensure you minimise costs and risks.
- All members are responsible for decisions - You cannot remain a member of a fund but opt out of making decisions. If you do not have the time or inclination to manage your fund, you must consider whether to leave or wind up the fund altogether.
- No member can leave without all trustees agreeing - Generally, members are also trustees, which means everyone has to agree. This can be problematic whether an individual hopes to leave, or other members want to exclude them.
- Any decisions must comply with the trust deed - Check the deed for any wind up requirements and ensure your actions comply. Hopefully your deed contains watertight instructions about what to do whether an individual leaves or you want to wind up the fund completely.
- Assets must be transferred - If a member does leave, the trustees must arrange for their benefits and assets to transfer into another eligible fund. Should everyone leave and you choose to wind up the fund, all monies must be paid out as applicable, with enough leftover to cover any remaining administrative costs.
- The original SMSF should be restructured - Assuming one person is leaving and other members choose to remain, the original fund should be restructured to ensure it still complies with the terms of an SMSF.
Remember, you also have to formally notify the Australian Taxation Office (ATO) within 28 days of the change.
Before you join or leave an SMSF it's worth seeking legal advice. Be sure you know what your obligations are by consulting the expert team at Malouf Solicitors.
Please call us on 02 8833 2000 to speak with a lawyer
Dear Anthony & Kym. Thank you for all your help and support in our matter. It is a big relief to us that it is over. Please also thank your staff, Myla and Lina etc for all their help. It has been a pleasure working with you all, the subject matter notwithstanding. With best wishes and regards,
Nick of Parramatta