The conveyancing requirements
This blog articles aims to provide an understanding of how you can instruct your solicitor and conveyancer in respect of the requirements relating to putting a property into your superfund.
If you plan to do so, you will undoubtedly receive advice from your financial advisor and others as to the structure which needs to be put in place.
The Australian Taxation Office has issued some rulings which set out exactly how property is to be acquired by a self-managed superfund.
Funds acquire property in one of two ways:
- By using the assets within the fund to buy the property in the fund’s name, or
- using some of the assets within the fund as a deposit and borrowing the rest.
Buying a property to place in an SMSF with borrowings
Some people will be unaware of the second point above, but the Australian Taxation Office now allows superfunds to buy property, and use money from the fund and money that is borrowed.
It is important that the finance is in place prior to exchange of contracts.
The concepts that the ATO have developed is that there can be no recourse against the other superfund assets. This means that the loan put in place would be a non-recourse loan. For those that are interested I am attaching to this article a copy of the ruling by the Australian Taxation office being SMSFR12/1. This ruling sets out what the requirements the tax office has in relation to “limited recourse borrowing arrangements”.
The URL is:
One of the most important things that the trustee of a superfund needs to do when they are going to borrow or need to buy a property is to set up a new trust. The trust is known as a bare trust. The only asset that the bare trust will hold will be the property being purchased.
The most important concept that can be put in place when a property is bought on behalf of a superfund with a borrowing is to correctly describe the purchaser on the contract. The purchaser should be described as follows:
“Brown and Co Pty Ltd. ACN. 1234567as Trustee for the Brown Family bare trust as Trustee for JC Brown Pty Ltd as Trustee for John and Claire Brown superannuation fund”
One of the important aspects of ensuring that the bare trust is correctly described on the contract is as follows:
- The only recourse the bank would have would be against the property and no other fund assets.
- When the loan is paid off, and the mortgage is discharged, the property will be transferred into the name of the trustee, in this case JC Brown Pty Ltd as the trustee for the John and Claire Brown superannuation fund. If the contract does not correctly describe the bare trustee there will be a second amount of stamp duty payable on the transfer to the trustee of the superannuation fund. For that reason it is important that you keep all superannuation documents and the trustee retains all contracts and evidence of payment of stamp duty. The original documents will be required to satisfy any of the relevant state stamp duty officers.
- The trustee of the bare trust does not receive or hold any other assets other than the property. This means that the trustee of the bare trust does not have a bank account or an Australian Business Number and is not registered for GST. You should check with your accountant to see that these matters are in order.
The most important aspect for any trustee of a superfund when buying a property is to get proper legal and accounting advice to ensure that the structure put in place is correct and compliant with the Australian Taxation Office rulings. Non-compliant structures may result in the fund not being compliant and any deductions claimed in respect of contributions to the fund or income earned from the fund may attract special taxation penalties and charges.
Overall, keep all original documents in a safe place, and keep a documents register including the contract used to purchase the property, evidence of payment of stamp duty, valuations obtained for rentals and so on.
For additional information, call John Morrissey on 02 9331 0266 or Susan Du Chesne at Equilibrium Wealth on 02 9357 2700.