Trustees intending to buy property with an SMSF loan should ensure the deposit is paid from their fund account to avoid potential stamp duty liabilities, according to a lending specialist.
Bluestone head of specialised distribution Richard Chesworth highlighted trustees choosing to pay a loan deposit through their own name, rather than that of the fund, was still one of the biggest pitfalls he was witnessing in the lending space.
“[When] people are buying properties, sometimes they may have a vendor saying ‘you’ve got to pay your deposit now’ and they haven’t set everything up,” Chesworth said during a session at the recent SMSF Association National Conference 2024 in Brisbane.
“The [trustee] may sign the contracts for the purchase in their own name and/or nominee, which is all fine, but you really should get things in order before you buy the property.
“The challenge with that is when the loan is repaid and you want to transfer the asset from the bare trustee to the SMSF trustee legal owner, you want to go to the office of state revenue, where possible, and get a stamp duty exemption.
“If you’re going to get that stamp duty exemption and if you can’t show the deposit has come from the SMSF account, it’s unlikely you’re going to get that exemption.”
To that end, he recommended keeping documentation, such as bank statements in the name of the SMSF, in a secure place to be able to furnish to the revenue office at the end of the loan repayment period.
He also reminded trustees and practitioners to ensure details are entered accurately into loan contracts.
“We still see a lot of contracts come in signed in the [wrong] name, not the majority of them, but it’s still happening. This requirement has been in place since 2007 and we need to get this right and work with all our partners to support of the SMSF trustee,” he said.