Added diligence around timing and the name of the purchaser in relation to contracts of sale can save SMSF trustees and advisers from harrowing and costly stamp duty issues, a specialist law firm has said.
“Stamp duty is enormously important in this area [of limited recourse borrowing arrangements (LRBA)], in fact, it actually is the basis behind which most SMSFs borrowings are arranged and organised,” Townsends Business and Corporate Lawyers principal Peter Townsend told a Super Central Bacon, Super and Eggs event in Sydney recently.
“It’s all very well for the Superannuation Industry (Supervision) (SIS) Act to be the place where SMSFs are entitled and empowered to borrow, but stamp duty is where all the bells and whistles occur when the rubber hits the road and that’s why the transactions in limited gearing arrangements are somewhat torturous because of the need to step deftly around the stamp duty issues.”
Extra care around the arrangements associated with the rollout of an LRBA meant the timing of the contract was key, Townsend said.
“If you get the timing wrong, you could end up with three times the duty that you would otherwise have to pay – you’d end up with a bill approaching $50,000 when it could’ve been $18,000,” he said.
“That’s where everything possible goes wrong and believe me it happens to many people who don’t seek legal advice and who only come rushing in with the paperwork when the Office of State Revenue has issued the statement.
“So you could end up paying duty on the contract of sale once, which is fine, but then separately on the declaration of trust that is associated with the holding trust when it’s not done in the right order, and then thirdly on the holding trust back to the fund.
“But both of the latter should not attract any material stamp duty.”
He said advisers also needed to be wary of the different stamp duties according to jurisdiction.
Another area that was problematic was the name of the purchaser on the contract, as it was often completed incorrectly, he said.
“This is a major area that people get things wrong,” he said.
“They put the super fund trustee in as the buyer. It is not the super fund that is buying but the holding trust, so if you put down the super fund, you’ve breached the SIS Act.
“Then to get it right you’ll have to transfer the property from the fund to the holding trust and that transfer will be [subject] to the full rate in New South Wales, so you will be looking at double stamp duty.”
