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If an individual decides they like a real estate property, so they put a deposit down on it - seller is unrelated. They sign the contract in their own name as an individual, they then decide that they want their self managed super fund to be the purchaser (rather than the individual) which they dont have set up at the time of making the deposit, so they go an set up a self managed super fund next. Is it then okay for the Self managed super fund to be the purchaser by say doing a nominee which is the smsf. Lets assume no borrowings / lrba here. Assuming i obtain a contract of sale which states the purchaser is an individual, what other evidence do i then need to obtain to ensure the owner (purchaser) is in fact the smsf trustees and not the individual?
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Hello Mark
Thanks for the question.
There could be the potential imposition of double stamp duty where an "or nominee" clause for the purchase of land is activated. This is a specialised area of law for which advice should be obtained from a legal practitioner.
Focusing on the SMSF specific aspects of the question, it is assumed that the contract will be settled by the trustee of the SMSF. Ordinarily, there would be correspondence between the vendor and the trustee of the SMSF advising that the "or nominee" clause is to be activated.
Ideally, the vendor should return the deposit to the individual, and then the SMSF, from its own bank account, should make the deposit to the vendor. It is appreciated from a risk management perspective, the vendor is unlikely to release the deposit it already holds until after the SMSF makes a fresh deposit.
At first glance, the above suggestion might seem cumbersome and you are entitled to question why this matter has been raised. The concerns here are twofold. If the deposit is made from funds that were not provided by the SMSF trustee, the risk of double stamp duty applying is escalated.
The second concern is that depending on the nature of the legal rights and obligations that were created when the land sale contract was signed and the deposit by the individual was made, it is possible that assigning over to the trustee of the SMSF the right to settle is not simply viewed as the making of a non-concessional cash contribution to the SMSF, but rather the acquisition of some type of asset other than cash from a related party by the SMSF, which could be precluded under section 66 of the SIS Act.
As the SMSF did not exist when the deposit was made, it is not possible to argue the individual was acting as an "agent" for the the trustee of the SMSF when the deposit was made.