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Antony Joseph

Aug 29, 2021

in SMSF Technical Forum

A residential house is held in a Unit Trust "R" with by three unit holders A,B and C without any loans. Unit holder A wants to acquire the residential house with his SMSF ( where there are four members in total) and one of his other Unit Trust by name Unit trust "S" in 50:50 ownership. I assume there is no issue with this acquisition and Unit Trust " S" can obtain finance from bank for acquiring units . Attached a structure proposed .

Please advice

Also is there any change if the above residential property is a medical clinic.

1 answer0 replies

Comments (1)

THE AUDITORS INSTITUTE

Aug 30, 2021

Hi Antony

There are some similar issues to that raised by Shalendra re her query re Unit Trust investments.

As a starting point you are referring to the rules relating to a Fund investing in an ungeared unit trust when it invests in property (refer Regulation 13.22C of SIS). A Fund is allowed to invest in a related party Unit Trust when the SIS regulations are followed.

The related party ungeared unit trust SIS requirements are as follows:

· No borrowings or loaning of money (eg unpaid distributions)

· Property is not leased to a RP (related party) unless it is BRP (Business Real Property)

· Property has not been acquired from a RP unless it is BRP

· Entity does not carry on a business

· Entity does not have an investment in another entity (eg. Shares)

A SMSF can acquire units in the Unit Trust from a related party at market value. The rules would need to be followed and any tax / stamp duty implications would need to be considered. In relation to the ungeared unit trust rules the property has to be real property and it could be residential or commercial property (eg a medical clinic).

In your example I assume you are referring to unit holder A through their Super Fund acquiring extra units in the Unit Trust that owns the property. On the basis that the Unit Trust is ungeared and the above rules are met then their Super Fund can acquire the extra units. In relation to their Unit Trust also acquiring units that can also occur. The Unit Trust "S" would not be able to use the Unit Trust's property as security to obtain the finance.

Thanks

SMSF AAA