This is a copy of my “SMSF and other Trusts” seminar that I presented to the Australian Institute of Conveyancers’ members 3 times this year; being at Perth, Bunbury and mostly recently in Geraldton. Appreciably these slides only cover some of the trusts and compliance issues that we discussed in detail during these seminars and that pertain to Conveyancers/ affect settlement transactions. The key are covered are: Self-Managed Superannuation Funds, Limited Recourse Borrowing, Bare and Custodian trusts, Family Trusts’ real property transfers into SMSFs and vestings, Special Disability Trusts plus a myriad of other practical and commercial issues.

1. “What are the Range and Type of
SMSF and Other Trusts’
Real Property Transactions
That Can Occur?”
AICWA – August 2013
Presented by:
Tom Meagher – Director: Commercial Law
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2. Tom Meagher | Director | Commercial Law
Tom has over 20 years‟ business experience; including
working for major national and local law firms, owning and
managing an IT businesses, and being a director and inhouse counsel for a public company.
Tom has excellent communication, technology and personal
skills with a proven ability to develop business relationships
and maintain clients.
Tom‟s clients include a broad range of local and national
businesses and organisations (including not-for-profit
entities), accounting firms, financial brokers and advisers,
franchisors and high net-wealth families.
Tom is also a regular presenter of seminars to various client groups and professional
bodies on a wide range of commercial law topics.
Based on Tom‟s training and business experience, he has a unique understanding of
his clients‟ objectives and legal needs. Tom is therefore able to provide a very clientfocused and commercial approach to all your dealings.
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3. Disclaimer
• The information presented in this seminar is intended
only as a guide, as to the topic and the matters
discussed.
• This seminar is not legal advice and must not be relied
on as such.
• If you have a matter which relates to this seminar or you
require legal advice, careful review and analysis of your
matter’s particular facts, information and documents is
required before proper legal advice can be given or
applied to your matter.
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4. Introduction
• At all times a conveyancer must ensure that they, in no way,
provide any advice whether legal, financial or taxation, in relation
to the „limited recourse borrowing‟ (aka as a geared) transaction.
If doubt check with your lawyer or professional indemnity insurer.
• This is a new area of law and operates in a highly regulated legal
and taxation environment, in addition to the somewhat more
complex nature of the Conveyancing matters relating to the
limited recourse borrowing arrangement.
• It is very important that the trustee(s) of the SMSFs and its
related Custodian company directors have sought and obtained
proper licensed financial and taxation advice in regards to the
proposed Geared Transaction before signing any contract to
purchase a property.
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5. SMSF
BORROWING
and PROPERTY
INVESTMENTS
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6. A SMSF Borrowing Arrangement Explained
• The exception in section 67A of the SIS Act generally allows
SMSF trustees to borrow under an arrangement where:
– the money is applied for the acquisition of a single asset;
– the SMSF trustee would not be prohibited from investing in that asset
directly
– the asset is held on trust by a Custodian so that the SMSF trustee acquires
a beneficial interest in the asset, but the asset is segregated for borrowing
liability
– the SMSF trustee has the right to acquire legal ownership of the asset by
making instalment payments to the Custodian
– the lender's rights against the SMSF trustee for a default on the borrowing
or charges related to the borrowing are limited in recourse to the underlying
acquired asset only, as held by the Custodian
– the liability of the SMSF trustee(s) to the lender is thus limited to recourse
against the asset only.
– the Custodian cannot be the exact same entity or persons as the trustee of
the SMSF
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7. Compliance with the Superannuation
Industry (Supervision) Act 1993 (SISA)
• The “sole-purpose test” - section 62 of the SISA;
• The “investment strategy requirement” - section 52(2)(f);
• The “related-parties acquisition rule” - section 66;
• The “arm‟s-length dealings requirements” - section 109;
• The “in-house asset rule” - section 71; and
• The “prohibition against charging” - regulation 13.14 of the SISA‟s
regulations.
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8. SMSF Type Property Investments
• Non-specialised commercial properties;
• Residential properties (being houses, units, villas, townhouses);
and
• Specialised commercial properties deemed as “SISA compliant”
and acceptable to the relevant lender under their then-current
SMSF-lending policy guidelines.
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9. Issues to consider
• A single acquirable asset – s67A(1)(a) SIS Act
– Off–the-plan purchase with separate titles for apartment and car park
SMSFR 2012/1 “We should take a practical approach”
• Replacement asset – s67B(2) SIS Act
– Maintain /repair / improvement / replacement
– Does the improvement change the nature of the asset
– Fund can use own money to improve asset, as long as the asset does not become a
different asset
• Property Development
– house on a single title block of land with deposit and final payment
• each payment is for the same single acquirable asset and single LRBA is ok
– off-the-plan purchase of strata titled unit (purchase of unit yet to be built)
• deposit and final balance at settlement may be funded under a single LRBA
– single title vacant block of land with construction of house
• deposit and final balance at settlement may be funded under a single LRBA
– option for off-the-plan purchase of house or strata titled unit
• relevant acquirable asset is the option
• need new LRBA for the purchase of house and land or the strata titled unit
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10. Documents & Entities that need to be in
existence before the contract can be signed
 SMSF trust deed
 An appropriate Investment Strategy
 A Custodian company must first be established by the SMSF
Custodian
 Bare Trust Deed
 The SMSF will need to acquire a “beneficial interest” in the
Property at settlement
 The lessor of the Property will become the Custodian upon
settlement
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11. Update Deed for SMSF
Include investment strategy options, PDS and corporate
trustee for SMSF
|
Prepare Custodian Trust Deed
|
Execute contract in name of Custodian Trustee
|
Obtain loan approval
Provide contract and trust deed for SMSF and Custodian
Trust
|
Executed loan documents may require solicitor
certification for guarantees
|
Settlement with funds advanced by bank and title to
bank
|
Find tenants for property and enter into legal lease of
property
|
Make final payment and transfer the asset to the fund
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15. TRANSFERRING
REAL PROPERTY
INTO SUPER
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16. Transfer of Real Property into a SMSF
• Things to consider
– Is the commercial property currently in the name of the Trustee of a
Family Trust?
– Who are the members of the SMSF?
– Valuation of the Property
– Contributions
– GST
– Lease
– CGT
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17. Scenario 1
Mr A finds a property on the market which he wishes to purchase using his self
managed superannuation fund. It is an existing commercial property. He will
finance the purchase using a limited recourse borrowing arrangement through
the bank
•
Is this permitted? Yes
•
Documentation required
–
•
up to date SMSF deed / Investment strategy/ Corp. Trustee for SMSF / Bare Trust Deed /
Corp. Trustee for Bare Trust - Super Trustee and Bare Trustee must differ
Wording of the Offer and Acceptance:
“ABC Pty Ltd as trustee of the XYZ Custodian Trust as trustee of the PQR
Superannuation Fund”.
There are no other special conditions required.
•
Duty – normal ad valorem rates
•
Certificate of Title - registered in the name of trustee of Custodian Trust
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18. Scenario 2
Mr A finds a property on the market which he wishes to purchase using his self
managed superannuation fund. It is an off-the-plan purchase for an apartment.
He will finance the purchase using a limited recourse borrowing arrangement
through the bank
•
Is this permitted? Yes
–
•
Documentation required
–
•
the ATO has changed its mind between SMSFR 2011/D1 and SMSFR 2012/1
up to date SMSF deed / Investment strategy/ Corp. Trustee for SMSF/ Bare Trust Deed /
Corp. Trustee for Bare Trust - Super Trustee and Bare Trustee must differ
Wording of the Offer and Acceptance:
“ABC Pty Ltd as trustee of the XYZ Custodian Trust as trustee of the PQR
Superannuation Fund”.
There are no other special conditions required.
•
Duty – normal ad valorem rates
•
Certificate of Title - registered in the name of trustee of Custodian Trust
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19. Scenario 3
Mr A already owns a property. He wishes to sell it to his self managed
superannuation fund. He will fund the purchase by a limited recourse borrowing
arrangement.
•
Is this permitted? yes, so long as business real property and acquired at market value.
Section 122 of the Duties Act allows for nominal duty at $20.
•
Documentation required
–
–
NOTE: SMSF deed must prohibit “pooling” of the asset transferred
–
•
up to date SMSF deed / Investment strategy/ Corp. Trustee for SMSF/ Bare Trust Deed / Corp.
Trustee for Bare Trust - Super Trustee and Bare Trustee must differ
As related party, we recommend a valuation of the property
Wording of the Offer and Acceptance:
“ABC Pty Ltd as trustee of the XYZ Custodian Trust as trustee of the PQR
Superannuation Fund”.
A special condition on the contract would be that the property be immediately
transferred to the Custodian Trustee (for compliance with SIS)
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20. Scenario 3 cont’d
•
Duty
– O& A in the name of the SMSF ( best not the Custodian Trust ,s 122) / nominal duty.
– Supply the Bare Trust when lodging
– Application form
– See also section 126 – transfers of dutiable property between trustees and custodians
•
Certificate of Title – registered in the name of Bare/Custodian Trustee
•
Liaise with legal advisor
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21. Special
Disability
Trust
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22. What is a Special Disability
Trust?
Two options
• Setting up a trust while you are alive
• Setting up a trust through your will, to take effect
after you die
– (A Special Disability Trust within a Testamentary Trust).
The same legal rules will apply
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23. Who is a person with a “severe
disability”?
Two options
• A person over 16 years of age
– Level of impairment - “severe disability”
– Carer allowance
– Cannot work more than 7 hours in open labour market
• A person under 16- “profoundly disabled”
.
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24. What is “reasonable
accommodation and care needs”?
• Reasonable costs
• Reasonable care
• Dental & medical expenses
• Discretionary spending of $10,500
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25. Who can contribute to a Special
Disability Trust?
• Anyone
• Principal Beneficiary and partner only if:
– Assets received under a will
– Superannuation death benefit
Funds transferred within 3 years of receipt
• Contribution must be unconditional gift
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26. THE BENEFITS
• a capital gains tax (CGT) exemption for an asset transferred
into a special disability trust (SDT) for no consideration
• a CGT main residence exemption for a trustee of an SDT
• a CGT exemption for a recipient of the principal beneficiary's
main residence, if their ownership interest ends within two
years of the principal beneficiary's death, and
• equivalent taxation treatment amongst SDTs established under
different Acts.
• These advantages are effective for CGT events that happen on
or after 1 July 2006 (the year in which SDTs were first able to
be established).
• Income of the SDT is taxed at the principal beneficiary’s
concessional rates, not the trustee rate of 45%
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27. Should You Set Up a Special Disability
Trust or Not (cont.)
• If the need for money for care and
accommodation not that likely, it may not be
appropriate to tie up a lot of money in a Special
Disability Trust where there will be ongoing
accounting expenses.
• If you want funds to be available for the person
with severe disability more broadly than for just
care and accommodation, a special disability
trust is not be suitable but may still be partly
used.
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28. Section 111 Duties Act (WA)
• Duty is not chargeable on a transfer of , or an
agreement for the transfer of, dutiable
property –
– a) to a special disability trust, within the meaning
given in the Social Security Act 1991
(Commonwealth) section 1209L; and
– b) if there is no consideration for the transfer.
• Seek legal advice before transferring property
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29. VESTING
A
TRUST
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30. VESTING OR TERMINATION OF A
DISCRETIONARY TRUST
The following information is required in respect of a transfer
of, or an agreement for the transfer of, dutiable property to a
taker in default on the vesting or termination of a discretionary
trust (s.115 of the Duties Act):
5. Copy of the trust deed (or stamped copy if executed prior to 1 July 2008).
6. Copies of any subsequent amendments to the trust deed (or stamped copies if
executed prior to 1 July 2008).
7. Duty endorsed copy of the agreement for transfer in respect of the acquisition of
the trust asset the subject of the vesting, i.e. contract for sale, offer and
acceptance, etc.
8. If the evidence specified in 3 above is not available, then conclusive
documentary evidence in the form of the trustee’s minutes, declaration of trust,
financial statements, evidence of payment for the property by the trust, etc. will
be required.
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31. VESTING OR TERMINATION OF A
DISCRETIONARY TRUST cont’d
5. Complete financial statements of the trust as at the date immediately prior to
vesting or termination and as at the previous 30 June. If the former are
unavailable also advise of any significant variations between the two dates.
6. The amount of any liabilities assumed under the transaction.
7. The amount of any debts released or extinguished under the transaction.
8. Identify the specific clause/s of the trust deed relating to the distribution of the
trust’s property upon a vesting or termination of the trust.
9. Where necessary, confirm how the taker in default is entitled, i.e. family
relationship; and
10.Any other relevant information that may assist in the assessment of duty.
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32. FAMILY COURT
SETTLEMENTS
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33. Family Court Settlements
Issue: The orders must be followed
– Our Instructions: to Vest super fund held property to
the 2 former spouses as tenants in common
– Family Court orders:
• “Upon the sale of Aqua Lot 27.. the funds will be split
50/50”.
– Potentially ‘contempt of court’
– New orders required:
• “..within 21 days… do all things and sign all documents
necessary to vest Aqua lot 27 into their names as tenants in
common in equal shares.”
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34. Family Court Settlements contd
Issue:
Will there be duty payable ?
Must have:
- Orders of the Family Court of Australia or Family Court of Western
Australia
- Financial Agreement (BFA)
Strict compliance with the orders:
-
Order that make sense
Contemporaneous conditions
Discharges required of a party
Rates and other adjustments
Problems with possession
Liaise with the party’s lawyer
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35. How to avoid unnecessary legal risk,
cost and stress
•
Don‟t rely on friends, „mates‟, agents or other non-qualified third parties
for “advice”. They:
a)
do not act for you,
b)
do not owe you no fiduciary duty; and
c)
are not qualified (or insured!) to give you proper legal advice.
•
Engage a lawyer at the right time – e.g. you do the deal but before you
accept a contract, be sure to obtain appropriate legal advice.
•
Business lawyers can add value
warranty/insurance claims or litigation!
•
If a dispute arises, be sure to clarify the issues in writing, keep all
material information/documents and seek advice early (also, if
applicable, promptly notify your relevant insurer – rights of subrogation).
and
can
be
better
than
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36. THANK YOU
tom@murfett.com.au
www.murfett.com.au
© Murfett Legal 2013