Purchasing Property in SMSF

I am in the process of purchasing a property through our SMSF, by signing the contracts this Saturday with the RE agent.

My question may be simple, but unclear to me. It is "Under what name should the contract be signed under"?

I've spoken briefly to my Solicitor, MB, and accountant on this topic today, and I got a slightly different answer from each.

Just a bit of background to help put this together:
- The structure of the SMSF is setup similar to the drawing in this link:
http://www.superannuationwarehouse.com.au/property/investment-property/

- Lets say the corporate trustee for the SMSF is referred to as "JK Pty Ltd"
- Lets say the smsf is called "JK Superannuation fund"
- Lets say the custodian trustee for the bare trust is "200SX Pty Ltd"
- Lets say the bare trust is referred to as the "200SX Bare Trust"

So, what name would be put into the contract as the purchaser?

Now, here's the twist (well, I hope it isn't):
- The Bare trust was initially setup for a purchase that was planned in the middle of last year,
- For various reason's, the contract was ended,
- I have a copy of the paperwork of the Holding Trust Deed of the establishment of the Bare trust, and it isn't dated, and doesn't have listed in it any details of the property that was planned to be purchased back then.
-The purchase of the property back then was to be in QLD, the new property now is in VIC.

How do I know if I can still use the BAre Trust that was setup back then? Is there some type of registar that can be checked in this type of instance?

Thanks, JK
 
This is specialised legal advice. You need to speak to a lawyer for specific advice relating to stamp duty in the state of purchase, plus Super law advice. Get it wrong and you will be up for double duty and possibly a non complying superfund.

I had a client who approached me who totally ****ed it up. The only solution was to rescind the contract and start again.

It is the trustee of the custodian trust that enters the contracts. But you need advice on the wording

Who drafted the bare trust deed? The bare trust couldn't be set up if there was no property. a trust cannot exist without property. You need legal advice on whether the bare trust deed is suitable for the trustee to hold property for the SMSF trustee. Maybe even financial advice too.
 
Thanks for your reply

It is the trustee of the custodian trust that enters the contracts. But you need advice on the wording

Who drafted the bare trust deed? The bare trust couldn't be set up if there was no property. a trust cannot exist without property. You need legal advice on whether the bare trust deed is suitable for the trustee to hold property for the SMSF trustee. Maybe even financial advice too.

So, In the above example, what would the wording be, ie ".....200SX Pty Ltd..."?
I'm after the wording, because I received advice from 3 different advisors, and the end result is slightly different from each.


Who drafted the bare trust deed?

The Bare trust was set up by a company in QLD, with a view to purchase a property in QLD

The bare trust couldn't be set up if there was no property. a trust cannot exist without property. You need legal advice on whether the bare trust deed is suitable for the trustee to hold property for the SMSF trustee. Maybe even financial advice too.

Hmm, I don't know, that's why I'm posting on this forum, to get some suggestions....
In terms of the bare trust suitability, I mentioned it was set up to purchase a property, so I suppose its suitable.

If the solicitor, MB, and accountant, said the same wording, I wouldn't have posted this topic here. I just need a few pointers on how to tackle this tomorrow, naturally without offending any of them when I bring up the topic?

In the end, is it the safest to go by the advice of the solicitor? If they were incorrect, then they would be liable to sort it out? If I went against the direction of the solicitor (ie used wording suggested by MB or accountant), then I guess I'd be liable as I didn't take their legal advice?
 
Get specialist SMSF legal advice

I've used DBA who are Melbourne based and can recommend them. They provide excellent explanatory documentation along with the required documents to execute.

Don't assume that by filling in a few blanks on a document that you already have constitutes appropriate paperwork.

If you get this wrong the first problem you may face is not your accountant or your auditor or the OSR or even the ATO but your lender's lawyers who will go through the LRBA documents to ensure they aren't at risk.

Trev
 
Thanks for your reply



So, In the above example, what would the wording be, ie ".....200SX Pty Ltd..."?
I'm after the wording, because I received advice from 3 different advisors, and the end result is slightly different from each.




The Bare trust was set up by a company in QLD, with a view to purchase a property in QLD

Hmm, I don't know, that's why I'm posting on this forum, to get some suggestions....
In terms of the bare trust suitability, I mentioned it was set up to purchase a property, so I suppose its suitable.

If the solicitor, MB, and accountant, said the same wording, I wouldn't have posted this topic here. I just need a few pointers on how to tackle this tomorrow, naturally without offending any of them when I bring up the topic?

In the end, is it the safest to go by the advice of the solicitor? If they were incorrect, then they would be liable to sort it out? If I went against the direction of the solicitor (ie used wording suggested by MB or accountant), then I guess I'd be liable as I didn't take their legal advice?

A solicitor will be covered by professional indemnity insurance in case they are wrong. A mortgage broker wouldn't and an accountant may not either as it is a legal question - entering a contract. But it is best to get advice from a solicitor who knows this area of law and advises on SMSF purchase - most would not.

I am not going to advise you because I don't know the answer off the top of my head. I know that QLD is slightly different to most states.

No one can comment on your bare trust deed without reviewing it. It could be totally inappropriate. You need advice on this too before signing the contract of sale of land.
 
Terry,

Thanks for your advice again. I think I will have a polite chat with my account, and mention the difference between his wording and that of the solicitor tomorrow morning, and say to him that considering its a legal topic I should go with what the solicitor recommends. I'll then send a copy of the past doc's to the solicitor, and get her to make a final call?

Maybe its better to leave the old Bare Trust and have a new one set up for this deal?

In the event that the wording is incorrect, wouldn't the "...and/or nominee" allow for the change to be made later?
 
Terry,

Thanks for your advice again. I think I will have a polite chat with my account, and mention the difference between his wording and that of the solicitor tomorrow morning, and say to him that considering its a legal topic I should go with what the solicitor recommends. I'll then send a copy of the past doc's to the solicitor, and get her to make a final call?

Maybe its better to leave the old Bare Trust and have a new one set up for this deal?

In the event that the wording is incorrect, wouldn't the "...and/or nominee" allow for the change to be made later?

And/or nominee will make matters worse. This week I had a forum member contact me for advice about structure, but he had already signed the contract and/or nominee. Potential double stamp duty.

The lawyer can advise on the bare trust set up. A second opinion won't hurt. Try DBA lawyers as mentioned by Trev, they are the SMSF experts and leading SMSF lawyers in Australia.
 
Why would the additional clause potentially double the stamp duty? ( I think this contract already has a clause in it that allows for a nominee even if you do not add the wording?)
 
Details matter

JK, if I my offer one more bit of advice, despite what people with vested interests tell you SMSFs and borrowing are not a simple matter. I have found from personal experience that even the smallest detail can make a big difference. The only way to proceed in my view is to get a specialist lawyer to look at your specific circumstances and provide you with the documents you require.

I've found DBA very quick to turn these around, typically 2-3 days but of course that depends on workload etc. I have used them for third party and related party LRBA documentation.

Also from personal experience I found that the nuances of a situation can dramatically change the answer your own accountant might provide. I for example had to challenge mine more than once on a technicality that I was uncertain about.

If your purchase is for an off the plan property the complexity and need for absolute caution ramps up further. Two examples illustrate this;
. OTP contracts are not likely to be conditional on finance unless the vendor has reached their pre-sales target, even then they may not agree. OTP contracts that I've seen give 14 days to settle - that includes weekends. This is incredibly tight - be prepared for a white knuckle ride and be prepared to ask for a settlement extension.
. be very careful about what is included in the contract and how the property is structured. For example, if a car park and an apartment are on separate titles I don't think a single bare trust can be used as the 2 elements are not considered a single acquirable asset. As far as I know if they are on one title it is ok and if the car park is an exclusive use area it is also ok. Also be wary of fixtures/chattels - for example if your contract includes a furniture package you will need to get specialist advice on how to handle that as it wouldn't be a single acquirable asset either.

If you want to bounce some questions off me send me a PM, but I will only be able to give you an opinion based on my own experience.

If all this isn't enough, you need to have a contingency plan if the government decide to ban borrowing by SMSFs or tweak the rules. Presumably they will grandfather existing LRBAs but if a ban or rule change is introduced before you have unconditional loan approval you will need a plan B. Who knows what will happen and if it does when, but if it does, you will need that plan B.

Oh and don't worry about offending people, you have to get this right as the ATO will not take into consideration your politeness if there is a problem - just saying!

Trev
 
I am in the process of purchasing a property through our SMSF, by signing the contracts this Saturday with the RE agent.

My question may be simple, but unclear to me. It is "Under what name should the contract be signed under"?

I've spoken briefly to my Solicitor, MB, and accountant on this topic today, and I got a slightly different answer from each.

Just a bit of background to help put this together:
- The structure of the SMSF is setup similar to the drawing in this link:
http://www.superannuationwarehouse.com.au/property/investment-property/

- Lets say the corporate trustee for the SMSF is referred to as "JK Pty Ltd"
- Lets say the smsf is called "JK Superannuation fund"
- Lets say the custodian trustee for the bare trust is "200SX Pty Ltd"
- Lets say the bare trust is referred to as the "200SX Bare Trust"

So, what name would be put into the contract as the purchaser?

Now, here's the twist (well, I hope it isn't):
- The Bare trust was initially setup for a purchase that was planned in the middle of last year,
- For various reason's, the contract was ended,
- I have a copy of the paperwork of the Holding Trust Deed of the establishment of the Bare trust, and it isn't dated, and doesn't have listed in it any details of the property that was planned to be purchased back then.
-The purchase of the property back then was to be in QLD, the new property now is in VIC.

How do I know if I can still use the BAre Trust that was setup back then? Is there some type of registar that can be checked in this type of instance?

Thanks, JK

I am surprise that you wish to handle all the formalities on your own!!!:eek:
I purchased in QLD so may be different to you situation (yes, the signing actually is, I think).
Firstly, ask each an everyone on your team (the accountant, broker for finance, the solicitor or lawyer) if they have set one up before (SMSF purchase with borrowing)?
It seems they haven't and if you are provided with inconsistent information, as others mention, it can be very costly if you get it wrong. I would only deal with those specialist that have done it before.
I was buying in Qld.
- My accountant in QLD (specialises in property) set up the Bare Trust with corporate trustee in QLD, but I was instructed to sign at certain time (different states require signing either before or after the exchange of contract), there are stamp duty implications there!
- My broker in NSW, forwarded the advise to offer 70 days settlement (extended), even though finance was preliminary approved, so that finance (bank) lawyers can check the legality, paperwork, plus valuation is ordered, etc... (it takes more time and more stringent checking for approval).
- My lawyer in QLD coordinated the altered documents and did the searches as per normal property buy process.

I cannot advise you as my name was different. Please do not take my advise but you need to engage whomever set up your documents or someone like Terry (for a fee of course - as they provide professional assistance).
Your Fund Deed needs to be current and permitted to borrow, you Bare Deed needs to be correctly signed and stated and checked prior to exchanging. The broker forwarded all my financials including those both Deeds and the bank lawyers requested some changes (I was missing spaces in the name - can you believe it and had to change it in Bare Deeds throughout). All this was coordinated, including me by all those parties!
Basically, in my case the name of the Bare Trustee with ACN was on the contract. SO in my case it may have been ABC Property 1 Pty Ltd ACN 999999999. Trusts cannot be stated only the Corporate Trustees and it should be in the Bare Trustee's if you are buying with borrowed funds!
I wouldn't rush to signing this contract this Saturday, if I were you I would seriously organise professionals that have already done this and looked at your Deeds documentation!
It is not expensive if you do know what you are doing and you have professionals that have done it before!
The cost to me was minimal, only for accountant, who knew and did before the set up of Bare Trust with Corporate Trustee, updated the Fund Deeds a while back (perhaps $2K in total). The broker was organising the finance so no fee., he gets commissions, right? The bank lawyers took around $2K (being part of finance in the loan). And the QLD Lawyer/solicitor charged a fixed fee, as if you were buying property in your name, so you would be up for that cost buying in any entity anyway....
Take my advise, and seek lawyers advice to check your documents are in order!!! Also, deal with a broker that has done these deals!
Good Luck though....:)
 
One last question - as in my case in post 1, how do you find out if a Bare Trust has been used? Is their some sort of register that you can obtain the details?
 
Smsf set up for property

sorry, but how do you know if it's been executed?

Ive got some great financial planners who can set up and manage the SMSF for property including trustees, bare trusts, Also making sure all the money flows are correctly done.

After set up they are charging 1200 per year and take all the problems out of moving rent, R&M, capital, through the right accounts.

PM me with your details and Ill pass them on. They are based in Bris and have offices in Syd and Melb.

Jerry Parker
0418772714
 
YOUR bank will vet all the SMSF docs including the SMSF, Trustee Co, Custodian Trustee and the Bare Trust docs to ensure all are valid and operable. That why they sting you with fees from the firm they engage (ie Gadens).

If you get it wrong it will cost you more and more and more incl duty etc. The SMSF does not contract to buy the property. It will be owned by the custodian trustee company until the terms of the bare trust call for a transfer to the SMSF Trustee Co.

Little things people get wrong that are a problem:
- Custodian trustee formed the day of or after the contract date (yes I have seen this)
- SMSF and Custodian formed same date - No rollovers etc. Impossible to complete on time.
- Backdated company details (yet the Cert of Incorp is the actual date - Lawyers hate that one)
- Bare Trust exists before the contract....Backdated date errors
- DIY or people who use a conveyancer. (SMSF Borrowings need legal advice)
- Insufficient settlement period. The std 43 days settlement can be VERY hard to achieve
- The quandary of paying the deposit before the bank goes unconditional. A lawyer will say don't. There is little choice to this problem since unconditional bank approval will never be ready for exchange. Unconditional approval is often just before settlement is booked. Its a heart stopper for some.
 
Back
Top