Buying a property in the name of your Self Managed Super Fund (SMSF)
I find that Self Managed Super Funds (SMSFs) are getting very popular and more people are buying properties in the name of their SMSFs. However when buying a property in the name of the SMSF there are a few points to consider.
You have to first decide whether you are going to fund the purchase with funds from your SMSF or whether you are intending to borrow to finance the purchase. The banks refer to this as limited recourse lending and they stipulate certain conditions that have to be met before they will agree to fund a purchase through a SMSF.
It is advisable that you have a corporate trustee as the trustee of the Superfund. This ensures continuity. Often the husband and wife will decide to be the trustees of the SMSF and this is not advisable. If you don’t have a corporate trustee it can cost you more by way of fees and charges that are levied on the SMSF. Also in the event that one of the trustees passes away, it will leave you in a situation where there is only one trustee and additional costs have to be incurred to appoint another trustee and this procedure can be costly. However if you have a corporate trustee, this ensures continuity.
When you make an offer on the property you must put the name of the trustees of the SMSF as the purchasers on the Contract of Sale and the deposit must be paid from the Superfund. If the trustees are not listed as the purchasers and the deposit has not been paid from the Superfund, it is advisable to cool off on the contract of sale and re sign the contract by inserting the correct names into the contract and paying the deposit from the Superfund.
If you are intending to borrow to fund this purchase, as stated before, the banks have strict requirements that have to be complied with. They require that the property must only have one title. Hence if you are intending to buy an apartment or a unit, the property may have an accessory unit/s (a garage or a storage cage) with separate titles. In this instance the bank’s requirement as to “one title” may not be met and the bank may not fund the purchase of the accessory unit/s. In this instance the bank may advance the money to fund the purchase of the main unit but you may have to pay for the accessory unit/s with your own funds. Therefore get your lawyer to check the Contract of Sale and Section 32 Vendor Statement and advise you as to how many titles are there for the property.
If you are borrowing to fund the purchase your accountant may after consultation with your lender, advise you to set up a Bare Trust/Custodian Trust with a Bare trustee/Custodian trustee and the property will be in the name of the Bare trustee/Custodian trustee. It is again advisable to have a company as the Bare trustee/Custodian trustee. Once this has been decided on, you must inform your lawyer to prepare the necessary nomination forms and nominate the Page 2 of 2Bare trustee/Custodian trustee as the purchaser of the property.
The Land Tittles Office of Victoria does not recognise trusts, so no reference to the trust is made on the Transfer of Land. Rather your lawyer will prepare the necessary supporting documentation that has to be forwarded to the State Revenue Office of Victoria to inform them that the property has been purchased by the trustee of the SMSF.
Once you have paid off your loan to the bank then the property can be transferred from the name of the Bare trustee/Custodian trustee to the name of the trustee of the SMSF. This transfer should not attract any duty if there is a proper paper trail from the time you purchased the property and you are able to prove what is required by the State Revenue Office.
Generally the requirement is that a new Bare Trust/Custodian Trust has to be set up for each new purchase. You must ensure that you get the proper advice from a accountant who specializes in SMSFs before you set up your SMSF and purchase property through your SMSF.