Help required SMSF setup for a property purchase

Hi everyone

I am looking for some guidance with respect to purchasing a property through my SMSF.

About a 1 1/2 years ago my wife and I set-up a SMSF with ourselves as the personal trustees for the SMSF.

Up until recently we had the money from our SMSF invested in the stock market. However we have now sold out and have had the money deposited back into the SMSFs bank account.

We are now looking to purchase a property through our SMSF and will look to borrow some of the monies required to fund the purchase from the bank.

It is my understanding that in order for the SMSF to obtain monies from a lender.

We are required to set up an incorporated company to be the Property Trustee (ie. this company should not be a trading company).

I am currently in process of having this arranged and was wondering if someone could confirm the structure I will be nominating is correct (ie. creating the new company):

Company Structure: PTY Ltd

State of incorporation: VIC

Common Seal: No Seal

I will be nominated and acting in the following capacity for the company: Director, Secretary, Chairman, Public Officer & Member

My wife will be nominated as a Member of the company

Class of shares : Ordinary

Number of shares: 2

Total value of shares: $2.00

* These shares will be split between myself and my wife (ie. 1 share for me and 1 for her)

This is probably rather an obvious question but how is a company defined to be non-trading as opposed to a trading company?

I assume that this is detailed within the registration of the company. Therefore I am not sure if the way I am going to nominate and structure the new company (ie. based on the detail above) will fulfil that requirement?

I also understand that there is also a requirement for a Property Trust deed to be created but this is not required until the contracts are exchanged on the property (ie. given that I am looking to purchase in Victoria)

So if I was to purchase a property then the “new company” is required to be incorporated first and be noted as the purchaser on the contract.

Example:

SMSF name: ABC Superfund

Personal Trustees : Paul & Irene Smith


New company setup and incorporated by ASIC (ie. Property Trustee)

Name: XYZ Property Holding PTY LTD

The name on the contract for the purchase would be XYZ Property Holding PTY LTD with the 10% deposit required for the purchase to be taken from the ABC Superfund bank account.

If anyone could confirm that what I have articulated in terms of the above is correct I would really appreciate it.

Cheers
 
THis is not something you want to do yourself, you need an accountant or lawyer who knows what they are doing. Getting it wrong has significant consequences.

From memory all members will need to be directors of the company.
 
This is something you do not want to stuff up and have the ATO on your back.

Have an experienced Accountant that has set up at least 50 SMSF structures together do the work and have an experienced banker or broker who has done an equally number of SMSF loans to do the finance.
 
This is something you do not want to stuff up and have the ATO on your back.

Have an experienced Accountant that has set up at least 50 SMSF structures together do the work and have an experienced banker or broker who has done an equally number of SMSF loans to do the finance.



Thanks for the replies.

Actually I discussed the finance requirements with a major lender and they advised me what was required in order for them to lend monies to the SMSF (ie. setup of the new company in the first instance and then preparation of a Trust Deed).

As result of those discussions they then referred me to a very reputable company to prepare the relevant documents for me.

Hence the reason for my specific questions in terms of the setup of the new company. As they sent me a form where I was required to nominate the detail required for the setup of the new company.

I did ask my accountant in terms of the content however he wasn't of much assistance. Hence the reason I was seeking some views of the forum

Cheers
 
Based on what you have described above you would be breaching the SIS Act.

You have better seek legal advice in setting up the structure. You will also need a custodian trustee too.
 
Gidday

Can u tell me what the custodian trustee actually is

Cheers

YOu seriously need help to set this up if you dont know that.

To get a loan a smsf cannot hold the property directly but must establish a separate bare trust to hold the property.
 
Hi Terry

Thanks for the reply.

Depending on who you speak to different people utilise different terms used for describing the structure. So I just wanted to check what you were referring to.

I do understand that there is also a requirement for a Property Trust deed to be created but this is not required until the contracts are exchanged on the property (ie. given that I am looking to purchase in Victoria)

So if I was to purchase a property then the “new company” is required to be incorporated first and be noted as the purchaser on the contract. Then the property deed can be prepared after that

Thanks
 
Hi everyone

I am looking for some guidance with respect to purchasing a property through my SMSF.

About a 1 1/2 years ago my wife and I set-up a SMSF with ourselves as the personal trustees for the SMSF.

Up until recently we had the money from our SMSF invested in the stock market. However we have now sold out and have had the money deposited back into the SMSFs bank account.

We are now looking to purchase a property through our SMSF and will look to borrow some of the monies required to fund the purchase from the bank.

It is my understanding that in order for the SMSF to obtain monies from a lender.

We are required to set up an incorporated company to be the Property Trustee (ie. this company should not be a trading company).

I am currently in process of having this arranged and was wondering if someone could confirm the structure I will be nominating is correct (ie. creating the new company):

Company Structure: PTY Ltd

State of incorporation: VIC

Common Seal: No Seal

I will be nominated and acting in the following capacity for the company: Director, Secretary, Chairman, Public Officer & Member

My wife will be nominated as a Member of the company

Class of shares : Ordinary

Number of shares: 2

Total value of shares: $2.00

* These shares will be split between myself and my wife (ie. 1 share for me and 1 for her)

This is probably rather an obvious question but how is a company defined to be non-trading as opposed to a trading company?

I assume that this is detailed within the registration of the company. Therefore I am not sure if the way I am going to nominate and structure the new company (ie. based on the detail above) will fulfil that requirement?

I also understand that there is also a requirement for a Property Trust deed to be created but this is not required until the contracts are exchanged on the property (ie. given that I am looking to purchase in Victoria)

So if I was to purchase a property then the “new company” is required to be incorporated first and be noted as the purchaser on the contract.

Example:

SMSF name: ABC Superfund

Personal Trustees : Paul & Irene Smith


New company setup and incorporated by ASIC (ie. Property Trustee)
Name: XYZ Property Holding PTY LTD

The name on the contract for the purchase would be XYZ Property Holding PTY LTD with the 10% deposit required for the purchase to be taken from the ABC Superfund bank account.

If anyone could confirm that what I have articulated in terms of the above is correct I would really appreciate it.

Cheers

What you explain above seems OK to me if it's done correctly.
In summary this is what happens.
1. Super fund trustees (yourselves) pay the deposit from the fund, and the borrowed amount from the Lender to the Seller.
2. The Seller sells the property to the custodian - XYZ Pty Ltd. (This is the tricky part as the custodian & super trustee/s cannot be the same, hence why you need the custodian company. Lenders will only lend non recourse loans to companies. Documentation must be set up by deed covering the custodian, custody trust arrangements, etc.)
3. The custodian holds the property while the loan is in place, and it must be a non recourse loan. All income from the property is paid to the super trustee/s, namely, into the super bank account.
4.When the loan is repaid in full, the super trustees may require the custodian to transfer the property to them on trust for the super fund

Thus, by these arrangements, the existing super fund assets are protected at all times to ensure they are available to pay members retirement benefits.
 
I am glad you looked at the advice because if you went ahead and tried to do this on your own, you would have a non-complying super fund and have to pay 46.5% in tax on the opening value of all assets in that year you borrowed the money and on all income earned onwards.

When I had to organise a complying super fund for a client, Interprac offered the following to help prepare for the warrant for an additional fee -

Security Custodian/Bare Trust Deed;
SIS Act S67A & 67B, Auditors "Letter of Compliance";
Minutes of meeting for any/all Corporate Trustee/s;
Beneficial Owner Statutory Declarations;
Trustee Statutory Declarations;
Trust Deed/s "signed off" by major banks/lenders.

This is certainly an area where an accountant and a deed preparer comes in handy.
 
Hi Terry

Thanks for the reply.

Depending on who you speak to different people utilise different terms used for describing the structure. So I just wanted to check what you were referring to.

I do understand that there is also a requirement for a Property Trust deed to be created but this is not required until the contracts are exchanged on the property (ie. given that I am looking to purchase in Victoria)

So if I was to purchase a property then the “new company” is required to be incorporated first and be noted as the purchaser on the contract. Then the property deed can be prepared after that

Thanks


the terms of the trust will need to be in writing before the contract is entered into or you will face protential problems of stamp duty. you also need legal advice on stamp dut when the loa. is eventually paid off and the property transferred from the bare trustee to the smsf trustee as if certain steps not done now your fund could be charged stamp duty again when this happens.
 
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