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The SMSF has a corporate trustee with one member. He bought property overseas with borrowings and property as collateral, encumbered) , the member is the borrower and the name in the sales contract. Presented a Statutory Dec that the said property is not their personal assets but asset of SMSF and they are only acting as trustee of the SMSF. So the deposit and monthly repayment are coming from the fund as this is the investment strategy. His accountant prepared a bare trust with the one member as the individual trustee. Is there any contravention on the set up of Bare Trust. Also overseas bank has no copy of the bare trust as its not acknowledged by overseas bank. Pls advise. Thanks
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Hi Maria
Thanks.
I have not come across a property being purchased overseas by a SMSF with a borrowing (LRBA).
My view is that I would expect that the trustees would have obtained legal advice to support that the LRBA has been set up to comply with SIS.
An LRBA can be set up with a corporate trustee for the SMSF and the property can be in the name of an individual or individuals where they are holding the property in trust for the SMSF (via a bare / custody trust).
As the auditor you would need to request a copy of the loan agreement to see if this will meet the requirements of SIS (refer SIS section 67A). As an example you will need to be able to review that the rights of the lender are:
"are limited to rights relating to the acquirable asset".
Thanks
SMSF AAA