The scenario is as follows:

Three SMSF’s have purchased equal number of units (330K each) in a Unit Trust to buy two blocks of industrial land Total area is 3000 sq mt and total cost $960,000 (STAMP DUTY PAID BY UNIT TRUST).

Unit Trust has applied for the Council Plan and permit approval to build three Warehouses of equal size on the block of 1000 sq mt each. The intention is to sub-divide and allot one warehouse to each SMSF.

In our understanding it is an Unrelated Unit Trust and can borrow money for the construction of Warehouses which will cost approximately $2.1 million. Unit Trust borrowed money $750K from related parties say three private companies each of which belongs to the Directors of the respective SMSF entities.

Once the construction is completed and sub-division is approved, the intention is to transfer the properties to each SMSF.

Hence the SMSF will enter into LRBA with their respective related parities which have an outstanding loan to Unit Trust.

The properties from Unit Trust will be transferred at Market Value to the Holding/Custodian Trustee for the benefit of SMSF to satisfy the conditions of LRBA.  

We need following advice in relation to above scenario:

-          Whether Unit Trust can borrow money to build the warehouses?

-          Is there any issues to transfer the properties to SMSF using related party LRBA?     

-          What will be the stamp duty consequences? Is there any exemption for transfer of property from Unit Trust to Custodian Trustee?

-          What will be the CGT consequences?

-          Any other areas of concern?

As we have already transferred the properties from Unit Trust and paid the stamp duty because it was denied by the SRO VIC, we are planning to lodge an objection.

Regards,