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Hi,
I have a client who has purchased a property (in QLD) under the bare trust name, however there is no loan on the purchase at all, they used SMSF monies to purchase the property.
Is this a problem?
Should it be transferred into the SMSF name
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Tara, I have just come across the same scenario. The only difference is it is a SA property. I am going to qualify the audit for in-house asset but say in the management letter - potential qualification.
Hi Tara
Thanks, I have not come across this before. Based on your query a property has been acquired not in the name of the trustee of the Fund (but in a bare trust) and there has never been any borrowings.
My view is that the Trustees should get legal advice in relation to this.
My concern is that section 71(8) of SIS refers to:
"If, at a time:
(a) an asset (the investment asset ) of a superannuation fund is an investment in a related trust of the fund; and
(b) the related trust is one described in paragraph 67A(1)(b) in connection with a borrowing, by the trustee of the fund, that is covered by subsection 67A(1); and
(c) the only property of the related trust is the acquirable asset mentioned in that paragraph;
the investment asset is an in-house asset of the fund at the time only if the acquirable asset mentioned in that paragraph would be an in-house asset of the fund if it were an asset of the fund at the time."
That is there is an exception for an investment in a bare trust being an in-house asset (IHA) if there is a "borrowing". As there has been no borrowing then arguably there is no exception for the investment not being treated as an IHA.
Section 67A of SIS covers the limited recourse borrowing arrangements.
As noted above my concern is that as there has been no borrowing the investment in the property via the bare trust may be deemed to be a an IHA and be in breach of SIS. If other members have a view in relation to this that would be appreciated.
I also note that a Fund can invest in property via an ungeared company or unit trust under regulation 13.22C & 13.22D of SIS and the investment is not treated as an IHA. I assume the bare trust investment you refer to will not be covered by these regulations.
Thanks
SMSF AAA