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Campbell McCart

Jul 08, 2022

Contract Details Names in Buying Property under LRBA

in SMSF Technical Forum

SMSF is buying commercial property under an LRBA. The solicitor wants to know who the buyer is ?

EXAMPLE

1. Green Grass Pty Ltd ATF Razor Super fund wants to buy a commercial property from Chair Properties Pty Ltd ( Vendor). Purchase price $800,000, the smsf has $425,000 cash as a deposit and needs to borrow $375,000 under an LRBA.

2. Blue Boy Pty Ltd (Corporate trustee) and Sheep Bare Property Custodian Trust are established as required under LRBA rules.

The smsf' s solicitor wants to now for preparing the purchase contract what should be the correct name for the buying entity. It is my opinion the buyer is Blue Boy Pty Ltd ATF Sheep Bare Property Custodian Trust ( as it is holding the property as a separate asset so no other assets within the smsf are available to the lender ) or should it be Green Grass Pty Ltd ATF Razor Super Fund?

Please confirm correct buying entity.

6 answers0 replies

Comments (6)

ROBERT YOUNG

Feb 08, 2023

Similar matter ----contract in name of member /director of corporate trustee then nominates corporate custodian ATF the bare trust . Deposit paid by SMSF and have sighted receipt in custodian coy etc . Settlement and LRB in next financial year .

Ant comments ?

THE AUDITORS INSTITUTE

Feb 08, 2023

Replying to

Hi Robert

What state is the property in?

Thanks

SMSF AAA

ROBERT YOUNG

Feb 08, 2023

Replying to

Victoria

THE AUDITORS INSTITUTE

Jul 11, 2022

Hi Campbell

Yes I agree the normal approach should be for the SMSF buying a property under an LRBA for the purchase contract to be in the name of the trustee of the bare trust in trust for the bare trust. In your case being "Blue Boy Pty Ltd ATF Sheep Bare Property Custodian Trust".

My view is that if a SMSF purchases a property under an LRBA that they must get expert legal advice in relation to the purchase prior to signing the contract or paying the deposit. As property transactions have differing requirements based on the state the property is located it is essential the expert legal advice is obtained.

Thanks

SMSF AAA

Mark Baghdassarian

Feb 02, 2023

Replying to

Hello, can i present a situation i have similar to the above please but slightly different. The Buyer on the Contract of sale's for a property is the 'Corporate trustee of the bare trust ATF the SMSF's name'? Subsequently as i do a title search on the property i see that it is in the bare trust trustees name. The Accountant says that the trustees' solicitor along with the commercial lender said this was legal / Compliant. Is there any truth to this? If i receive a contract of sale with the incorrect buyer on it, but all other evidence points to this being ok, do i still have an issue? Is there something less obvious going on here that i should be aware of?

THE AUDITORS INSTITUTE

Feb 02, 2023

Replying to

Hi Mark

Most states in Australia require the title for a property with a LRBA to be in the name of the company that is the trustee of the bare trust.

The rules across the different states are covered in an article at:

https://www.seamless-smsf.com.au/limited-recourse-borrowing-arrangements/

Preferably you obtain a copy of the legal advice given by the lawyer to the trustee of the Fund re the LRBA. An option may be to raise in your management letter that you have relied on the advice of the lawyer that the LRBA has been correctly established.

If other members have a view as to how they would address this issue please let the forum know.

Thanks

SMSF AAA