Speak with our mortgage brokers at Plan A Mortgage and your accountant before setting up a bare trust.
When using a mortgage to acquire commercial/residential properties for your super fund, you cannot file the investment under the same SMSF.
Thus, borrowers need to set up a bare trust to apply for a standard home loan and buy the property. Still, all benefits will go to the beneficiaries of the SMSF.
You can use your super fund to purchase commercial or residential properties right off the bat.
But suppose you’re planning to purchase a retirement property earlier and don’t have enough funding yet. In that case, you’ll need to apply for a home loan.
Under the Superannuation Industry Supervision Act (SIS Act), you can still use your SMSF loan to invest in a property. However, you should sign the mortgage in a bare trust or custodian trust.
That way, you can comply under a Limited Recourse Borrowing Arrangement (LRBA) when engaging with an arms-length transaction.
Besides, you’ll need to set up a bare trust fund to legally protect your identity as an asset/share purchaser when buying properties for your super fund.
That’s why we recommend discussing your options with your accountant and call us at 1300 052 055 if you need to start the loan application process.
After you decide on a property you want to purchase under your SMSF, it’s time to set up a bare trust.
First, we suggest providing all necessary requirements to your SMSF accountant. That’s because the acquisition should follow the super fund’s long-term investment plan and pass the sole purpose test — both of which are written in your trust’s deed.
Usually, banks would need you to provide a certified copy of the bare trust deed for your application. Banks and lenders usually accept an applicant as a bare trustee rather than a corporate trustee.
After nominating the bare trustee, the SMSF should establish a Declaration of Trust that states the purchase terms. Speak with your accountant about how to establish and sign this document
Then, once the declaration has been agreed upon, your state registry office will then inspect the deed to verify and stamp it.
For more information about setting up a bare trust for your SMSF, we suggest seeking professional advice from an expert accountant and mortgage broker.
Technically, the SMSF members are considered the directors of the following entities:
The corporate trustee is generally the super fund’s trustee that receives benefits and pays for any fees associated with the asset or property.
On the other hand, the custodian trustee is the one whose name appears on the bare trust. They should hold the investment property solely so it can benefit the SMSF beneficiaries.
Following a proper order of signing the trust deed and the property’s sale contract can influence whether you’ll end up paying double stamp duty.
First, you should speak with your accountant to know about your state’s requirements.
Keep in mind that regulations would change without prior notice, so it’s crucial to stay updated with current SMSF policies and guidelines by speaking with your accountant.
The one who signs the contract of sale as a legal buyer should be the bare trustee.
That’s because the name of the bare trustee will show up on the title deed as the registered owner of the acquired property.
To avoid double stamp duty, we suggest removing references to the capacity of the bare trustee as the trust of the bare trust.
Usually, the rental income should be collected by the SMSF in a bare trust structure. But while the super fund benefits from that income, it is also responsible for property-related fees such as land tax, GST payments, mortgage repayments, and property repairs.
Unfortunately, a bare trust can only facilitate one home loan at a time. That means you’ll need one bare trust for every property you want to acquire.
After paying off the property’s mortgage, it will then revert to the SMSF.
Basically, a trustee is nominated by the beneficiaries and has no other role than releasing the property to their SMSF after they finished paying off the home loan.
In other words, a bare trustee is merely a person under the control or supervision of the SMSF beneficiaries.
Suppose a residential or commercial property can be sold separately. In that case, it will require a standalone title for every lot or property. As previously stated, a bare trust can only hold one property, so you cannot acquire the entire property if it has been divided into smaller titles.
Every ownership type has unique advantages and disadvantages, more specifically in protecting your assets and how easy it is to sell the property.
Since SMSFs work under a low-tax market, looking for deals to minimise your taxable income won’t work as well as acquiring a property under your name.
Keep this in mind, especially if you and your financial advisor plan to develop a sound investment strategy.
Before you proceed with your bare trust application, we suggest seeking professional help to ensure you get the best deals and that your structure and agreement are in your favour.
Call our specialist mortgage brokers at 1300 052 055 to discover your options for your SMSF loan or bare trust today!