SMSF trustees should avoid using declarations of trust to address problems where the ownership of an asset is not held by their fund, given changes in ATO advice and state-based rules around their use.
ASF Audits head of education Shelly Banton noted declarations of trust have been used to address the mistake of a trustee incorrectly attributing ownership of an SMSF asset to another entity, but this was likely to create a “stamp duty disaster”.
“The first problem is where a trustee makes that mistake of putting the wrong entity as the owner of that fund asset and then tries to paper it over with setting up a declaration of trust,” Banton said during a recent webinar hosted by ACIS.
“In reality, a declaration of trust is only good before the asset is purchased and not afterwards. If the asset is property and a declaration of trust is signed after the purchase, well that can trigger double stamp duty.”
She said where trustees may have used an acknowledgement of trust after the purchase of an asset to address ownership issues, this may no longer work in two Australian states.
“This is the new bit you need to be aware of because we used to ask for an acknowledgement of trust to be set up instead of a declaration of trust after a purchase,” she said.
“There have been changes to the legislation in New South Wales and Victoria that could result in an acknowledgement of trust triggering stamp duty. That’s going to have financial consequences if the asset is property.
“You really need to be careful about what you’re getting your clients to sign to confirm ownership, especially in certain states, and should think about getting them legal advice to make sure they’re not triggering that double stamp duty.”
The ATO had also made it clear there had to be legitimate reasons why an asset was not held on behalf of the trustee with the fund as a beneficial owner and had outlined its position in March through updated guidance via QC23322, she said.
“If you look at the ATO’s website, it says that where assets are unable to be held in the fund’s name, there must be an unavoidable restriction, such as state law, that prevents the fund from holding the asset correctly,” she highlighted.
“It doesn’t mention a trustee making a mistake is acceptable because that’s a breach of Superannuation Industry (Supervision) Regulation 4.09a.”
