FACT SHEET BORROWING THROUGH SUPER Prepared by Brett Griffiths, Directr Superannuatin Cnsulting e bgriffiths@vincents.cm.au
FACT SHEET Since September 2007 Self Managed Superannuatin Funds (SMSF s) can btain finance directly t acquire certain assets. This permissin is detailed in Sectin 67(A) f the Superannuatin Industry Supervisin Act (SIS), and is knwn as a limited recurse lan arrangement. Basically, this sectin says that the trustee f a super fund can brrw t acquire a single asset prviding that the asset is held n trust until such time as the brrwings are paid and that the nly asset t be prvided as security fr the brrwing is the asset being purchased. Sme imprtant things t cnsider when lking at this arrangement are: The preferred methd fr purchasing the asset is by using a Bare Trust. This is t ensure that when yu finally pay fr the asset and transfer it back t the name f the SMSF trustee yu d nt incur stamp duty, GST r capital gains tax; Yu can nly purchase an asset that yu wuld therwise be allwed t purchase anyway. This means that the trustee must still cmply with the sle purpse test and als the in huse asset rules; Yu must be brrwing t purchase an asset s yu may nt brrw against an asset the Fund already wns. Therefre yu may nt brrw t put a building n a blck f land currently wned by the fund r t make imprvements n an existing fund asset; The asset purchased must be a single acquirable asset. This is a prperty n ne title r a parcel f shares in ne cmpany. If the prperty is n multiple titles, it depends if there is sme physical r legal impediment that allws the prperty t be treated as a single asset (such as a factry which sits acrss tw titles), therwise multiple arrangements are required. A separate car park acquired with an apartment which has a ntice f restrictin ver it, meaning the car park and apartment must be transferred and registered tgether are under a legal impediment, s can be under the ne arrangement; A separate car park acquired with an apartment which is n separate titles, in the absence f any legal impediment, wuld need t have tw trust structures. If an apartment is being purchased with a furniture package, the lan cannt be used t cver the purchase the furniture under the same trust arrangement as the apartment. It shuld be remved frm the cntract and funded frm the existing liquidity in the Fund. Shares must be treated like ne asset. That is, purchased tgether and sld tgether. If shares in multiple cmpanies are desired, multiple arrangements are als required; It is pssible fr the Trustees f the Fund t brrw in their wn names and then n-lend that mney t the SMSF. The ATO, in ATO ID 2010/162, have even cnfirmed that the super fund can brrw n mre favurable terms frm a related party than what wuld have therwise been able t btain cmmercially. Hwever shuld the Trustees brrw in their wn names, they must charge the Fund the same interest rate t btain the deductin persnally; Persnal guarantees are permitted t be given t underwrite the lender s risk in the brrwing arrangement; The asset subject t the arrangement is nt subject t a charge ther than t the lender in respect f the brrwing arrangement itself; The asset within the arrangement can nly be replaced by a different asset in very limited circumstances specified in S. 67(B) f SIS; Page 1
It is very imprtant that the prperty cnveyancing (if applicable) be dne crrectly as small errrs can cst yur clients duble r even triple stamp duty and the errrs may nt be picked up until yu g t unwind the bare trust relatinship. We suggest that yur clients use slicitrs wh are cnversant with these arrangements and nt just prperty transfers; Trustees can refinance a brrwing including accrued interest if the new brrwing arrangement is ver the acquirable asset frm the first arrangement. The structure Bank r Trustee A trustee can brrw frm a Bank using ther assets as security and then lend t the Fund. Brrws n a limited recurse basis Pays $ t acquire beneficial interest in asset via Bare Trust Crprate Trustee Bare Trust Super Fund Acquires legal wnership in the asset OR Dividends, Rental incme, capital gains, expenses etc Page 2
What next The fllwing prcess shuld be adpted if yu wish t brrw t purchase a prperty in an SMSF: 1. Yu shuld seek advice prir t entering int a cntract; 2. If yu have an existing SMSF, an amendment t the Trust Deed may be required allwing the Fund t brrw. Just because the law says yu can brrw, desn t mean the Trust Deed allws it (Or set up a new fund if required); 3. A new investment strategy will be needed t prvide fr brrwing t acquire a particular type f asset and t cnsider the risks assciated with a lan and the liquidity issues that can ccur n death f a member(s); 4. Pre apprval f a lan fr a particular amunt f mney may be advantage s the trustees knw that they can brrw the mney befre they lck in t purchase a particular prperty. Yu shuld als cnfirm with the lender at this time whether they require a crprate trustee f the SMSF as sme d, r charge a different interest rate n the brrwing; 5. Set up their Crprate Trustee f the Bare Trust t hld the asset n their behalf. This will need t be a separate cmpany t the trustees f the SMSF. The reasn fr this is that yu can t hld an asset in trust fr yurself and sectin 67(A) clearly requires the asset t be held n trust. Lenders are als shwing that they will nly lend t a crprate Bare Trust trustee. Yu MUST ensure that the Bare Trust trustee is set up BEFORE yu enter int a cntract t purchase the asset as the Bare Trust Trustee will need t be the purchaser n the cntract; 6. Once yu have set up the Bare Trust Trustee yu can frmally apply fr the lan and als set up the Bare Trust deed. If the lan is t be frm a related party, a frmal lan agreement must be prepared; 7. Cntracts can nw be exchanged. Fr prperty, it is imprtant that yur cnveyancing is dne crrectly having regard t stamping the Bare Trust dcuments. Pr cnveyancing will lead t stamp duty cncerns in the future if yu have difficulty prving the real purchaser. Yu als need t ensure that the timing f the dcuments des nt create a duble cnveyance f the prperty; 8. It is nw just a case f settling the lan and the purchase. The asset is then shwn as an asset f the SMSF. It is nt an investment in a trust (where a bare trust is used). The bare trust deed can be used t prvide evidence f wnership t the fund s auditr; 9. The Bare Trust need nt apply fr a TFN r ABN. All financial transactins are direct with the SMSF trustee. The asset is t be treated as a direct asset f the SMSF Trustee. The asset is shwn as an asset f the SMSF in the fund s accunts. It is nt an investment in a trust that then hlds the asset. Establishment Csts T establish the SMSF $1,100 T establish a cmpany as trustee f the SMSF $1,100 T establish a cmpany t act as trustee f ne r mre Bare Trusts $1,100 T establish a Bare Trust $1,650 If multiple Bare Trusts required, add $660 fr each additinal Bare Trust Disclaimer and imprtant infrmatin The infrmatin cntained within this dcument is factual infrmatin nly. It is based n the interpretatin f the laws applicable t self-managed superannuatin funds and ther infrmatin available at the time f publicatin, being 22 August 2012. It des nt cnsider yur persnal circumstances and yu shuld nt reply upn this dcument as the sles means f decisin making. This dcument is nt a substitute fr seeking prfessinal advice. While all care has been taken in the preparatin f the cntents f this dcument, n directr, emplyee r their representatives f Vincents Chartered Accuntants r assciated entities gives any warranty f accuracy r reliability nr accept any liability in any ther law, including by reasn f negligence fr any errrs r missins cntained herein, t the extent permitted by law. Page 3
Our firm Established apprximately 20 years, Vincents Chartered Accuntants is an Australian firm f accunting experts and business advisrs specialising in frensic accunting, frensic technlgy, inslvency and recnstructin, audit & crprate advisry, taxatin and business slutins including tax and super cnsulting and financial advisry. Why Vincents Chartered Accuntants? We have wn the prestigius BRW Clients Chice awards fr the years 2007, 2008, 2009, 2010 and 2012 in the categries f: Australia s Best Prfessinal Services Firm (Revenue $50 millin) Australia s Best Accunting Firm (Revenue $50 millin) We prvide a flexible framewrk thrugh which we can deliver a quality service t the Fund s trustees. We have the necessary resurces and peple (apprx. 165 prfessinal staff acrss ur fur ffices t service yur accunting needs as and when required. Our peple Vincents uniquely fcuses n maintaining slid teams f diverse and highly skilled experts. We wrk hard t develp prfessinal staff with strng persnal qualities and a dedicated wrk ethic. Persnal details Name: Psitin: Brett Griffiths Directr, Vincents Chartered Accuntants Educatin Pst Graduate: Tertiary: Prfessinal Certificate in Self Managed Superannuatin, University f Adelaide SMSF Specialist Advisr tm, SPAA (SMSF Prfessinal Assciatin f Australia) Bachelr f Business (Accuntancy), Queensland University f Technlgy Memberships and appintments Emplyment prfile CPA Australia, Member Registered Tax Agent SPAA, Member SPAA Queensland State Chapter Cmmittee, Appintment Fr clse t 15 years, Brett has specialised in all aspects f superannuatin cmpliance including retirement savings accunts, large retail public ffer superannuatin funds and mre specifically Self Managed Superannuatin Funds. This includes wrking fr ne f the largest specialised Self Managed Superannuatin Fund administratin firms in Queensland. Page 4