SMSF trustees should not rely on superannuation and taxation laws as the initial barriers as to whether they can enter into a property acquisition, with the fund’s own documents being the first hurdle to overcome, a technical specialist has highlighted.
Accurium head of SMSF education Mark Ellem said all property transactions in an SMSF are governed by the fund’s deed and advisers and accountants should be directing trustee clients to examine it.
“I’ve always said that whenever you have a client that asks ‘can I do something?’ rather than picking up the Superannuation Industry (Supervision) (SIS) Act and SIS Regulations or the tax act and regulations, the first thing you should pick up is the fund’s trust deed and make sure the contemplated transaction, in this case the acquisition of property, is permitted under the fund’s trust deed,” Ellem said during an online presentation today.
“Does it have the power to acquire property and most deeds worth anything would have that power, but there’s nothing wrong with just doing that check, particularly where a fund can buy property anywhere in world.
“I would be surprised to find a deed that restricted that action, but make sure it has that power to acquire the property.”
He noted the ability to borrow, including under a limited recourse borrowing arrangement (LRBA), was also governed by the deed and that should be checked at the outset, adding it was critical to know how the fund would own the property.
“The part of the deed to look at here concerns legal ownership versus beneficial ownership and that’s important for an LRBA scenario,” he said.
“We have to make sure it’s got ownership of that asset, however, if it’s purchased via LRBA, it’s not the super fund that has legal title to that property, it is the bare trust trustee, but from a deed perspective does it permit that the asset of the fund can be legally held by someone other than the SMSF trustee.
“I’ve seen deeds which basically focus on having title to assets and simply state the assets of the fund must be held in the name of the SMSF trustee, and that’s not going to work for acquiring an asset under an LRBA.
“We need to check off those provisions in the deed to make sure we are covered when the fund trustee is looking at buying property.”
