Is a separate Bare Trust required for each new SMSF property?

[Harriet]

The title of this thread says it all . . .

When buying property in a Self-Managed Super Fund, would I be required to establish a new Bare Trust for each property purchased?

Would I also then need a new trustee for the new Bare Trust? Or could a company established to be trustee of the first Bare Trust also be trustee of future bare Trusts?

Hope that makes sense!

Harriet

 

[cegosling]

Hi,
Having just gone through this myself, the answer is yes-you do need a new bare trust each time you purchase. It is my understanding however that the original trustee of the first bare trust can be the trustee of subsequent trusts. Mind you the laws (and requirements of lenders if needed) tend to change vary quickly as this is still a relatively new area.

 

[Qlds007]

Simple answer = YES

 

[AVD]

Hi!

Yes you do need separate Bare Trusts for each property and separate Trustee Companies. There may be places that let you get away with having the same trustee but our legal advisors have informed us that you require two trustee companies. You may be able to push for a discount (from whoever sets up the Bare Trust and associated entities) because you are ordering multiple perhaps.

Alysha

 

[Pushka]

When we purchased land in our SMSF we didnt change anything to the original trust structure.

 

[AVD]

Hi

I meant separate trustees for each Bare Trust, not the trustee for the SMSF. that stays the same.

Regards,

Alysha

 

[Pushka]

OK, so what is a Bare Trust then, we dont have one of those either. Our SMSF has been going for over 10 years and has purchased two properties and sold one. Not a bare trust in sight.

 

[Harriet]

OK, so what is a Bare Trust then, we dont have one of those either. Our SMSF has been going for over 10 years and has purchased two properties and sold one. Not a bare trust in sight.

I believe you would only need a Bare Trust if you are BORROWING within your SMSF to buy a property. This has only been allowed since 2007.

 

[Pushka]

Ah, ok, we didnt borrow anything. Phew!

 

[AVD]

Sorry I should have been more specific, the Bare Trust is for borrowings in SMSF to purchase property in Super using warrants.

 

[SMSFLending.com]

.... personally I believe there is no need to establish another corporate trustee for subsequent property trust/s under this borrowing arrangement, I am very curious as to exactly what your legal advice was in relation to this?

A property trust is only required to hold the property when the SMSF borrowers money to acquire the asset.

New section 67(4A) of the SIS Act states that a fund can borrow money if:

" the asset is held on trust so that the fund acquires a beneficial interest"

The main reason the asset MUST be held in trust is to prevent existing SMSF assets from being utilised.

The ATO Taxpayer alert 2008/05 states that:-

Trustees are also reminded that existing fund assets cannot be placed into a limited recourse borrowing without breaching the SIS regulatory requirements.

(see below link)

http://law.ato.gov.au/atolaw/view.h...rowings by self managed superannuation funds;

It is also important to remember that trustee company's acting for the property trust DO NOT at this stage qualify as a 'special pupose company', therefore the standard ASIC requirements stand, i.e. annual return etc.

However company trustees acting for the SMSF (non trading) do qualify as a 'special purpose company' and are exempt.

Cheers.

 

[Jack321]

Generally speaking, I agree with SMSF Lending.com. Good work.

Re whether numerous Warrant Trust Deeds are necessary, note, however, that is actually POSSIBLE to use the same "Warrant Trust" deed to for the acquisition of assets at different times. What is important is the actual Warrant Trust deed itself. Some Warrant Trust Deeds make provision for numerous trusts to be held by the Warrant Trustee, where each trust relates to a particular property acquired at a particular time. They ensure that there is no scope for "mixing" and recourse beyond the particular asset held in the particular trust of which the trustee is appointed. Most Warrant Trust documents do not, however, have such a facility.

As a general rule, however, new warrant trust for each property acquired (unless all property acquired simultaneously with all money from SMSF and one lender), and no need for a different trustee for each different property. HOWEVER, again, this depends on all the other relevant documents, such as loan/security docs, in addition to the Warrant Trust. BE CAREFUL.

 

[shaunga]

Bare trust and trustee

I'm new to this too, I knew a bare trust was required for borrowing but isn't the bare trust also useful in minimising land tax liability in group land owner situation (for those states with this arrangement)?

I was beginning to form a view that one bare trust trustee company would be a useful way to economise on corporate costs as trustee for numerous bare trusts created as needed to acquire seperate properties (relatively inexpensively)

Just trying to get a grip on the purpose and function of these things is all?

 

[Terry_w]

New section 67(4A) of the SIS Act states that a fund can borrow money if:

" the asset is held on trust so that the fund acquires a beneficial interest"

.

Hi SMSFL

That section does not exist, and that sentence is no where to be found in the SIS Act.

Maybe, s67A(1)(b) "the acquirable asset is held on trust so that the RSF trustee acquires a beneficial interest in the acquirable asset"
is what you were after?

http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/s67a.html

 

[Rixter]

Is a bare trust only needed if a loan is required to purchase a property held in a SMSF? If smsf pays cash to purchase IP then no bear trust is needed?

 

[Terry_w]

Is a bare trust only needed if a loan is required to purchase a property held in a SMSF? If smsf pays cash to purchase IP then no bear trust is needed?

A bare trust is only needed if borrowing. It is used because the assets of the SMSF cannot be used as security for a loan. See the s67A link above.

The property is held on trust for the SMSF which is also a trust.

 

[Rixter]

a bare trust is only needed if borrowing. It is used because the assets of the smsf cannot be used as security for a loan. See the s67a link above.

The property is held on trust for the smsf which is also a trust.

......