I get asked this question from time to time, so I thought I'd write this article to help clarify the process for SMSF clients holding property in their super fund via a bare trust.
Once the last payment on the Limited Recourse Borrowing Arrangement (LRBA) has been made, here's what you need to do:
Loan Repayment: First, make sure the limited recourse loan is fully paid off.
Transfer of Title: After the loan is paid off, the super fund should call for the transfer of the property title from the bare trustee to the super fund trustee.
Stamp Duty Exemption: To avoid full stamp duty on the transfer, you can rely on the ‘apparent purchaser’ exemption. This involves showing that the bare trustee was the apparent purchaser and the super fund was the real purchaser. You'll need to provide a statutory declaration with supporting documents like bank statements and loan documentation.
Compliance with State Revenue Office Requirements: Follow the specific requirements of the State Revenue Office (Victoria) under section 34 of the Duties Act 2000 (Vic).
Key Considerations:
In-House Asset Issue: Once the loan is paid off, the interest in the bare trust may become an in-house asset. However, the SMSF (Limited Recourse Borrowing Arrangements – In-house Asset Exclusion) Determination 2014 allows the asset to remain in the trust without breaching in-house asset rules [1].
Asset Replacement: The asset cannot be replaced during the life of the loan. If the asset is subdivided or significantly altered, it may be considered a replacement, which is not allowed under LRBA rules [2].
Development of Property: If the asset is left in the bare trust, it cannot be developed or replaced even after the loan is paid off. To develop the property, the asset may need to be transferred from the bare trustee to the SMSF trustee [3].
Legislative References:
Superannuation Industry (Supervision) Act 1993 (Cth): Section 71(8) provides an exception to the in-house asset rules for investments made to meet LRBA requirements [4].
Duties Act 2000 (Vic): Sections 34 and 36 outline the exemptions for stamp duty on the transfer of property from the custodian to the SMSF trustee [5].
Relevant ATO and ASIC Rulings:
ATO Rulings: The ATO has provided specific guidance that a Bare Trust structure would not be regarded as a breach of superannuation legislation. Additionally, the ATO's guidelines on Limited Recourse Borrowing Arrangements (LRBAs) under sections 67A and 67B of the Superannuation Industry (Supervision) Act 1993 are crucial for compliance.
ASIC Rulings: ASIC's regulations ensure that SMSFs comply with the Superannuation Industry (Supervision) Regulations 1993, particularly regarding the use of bare trusts for property investments.
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