SMSF Property & Conveyancing
Property and Self Managed Superannuation Funds
Routinely, we are asked to review work undertaken by other professionals in relation to properties owned in superannuation funds.
Surprisingly, a decent percentage of these properties are incorrectly held or there are errors in the ownership, which may result in a notice of non – compliance being issued upon the annual audit of the fund.
The acquisition of a property into a superannuation fund is a very specific area in which any professional advisor needs knowledge of both property law and conveyancing as well as knowledge of the restrictions placed on the superannuation fund in their ownership of the property.
Common Problems to Avoid When Using Property In Super
Some common problems that we have found include:
1. Ownership in the wrong legal entity
The property must be owned by the correct entity in the correct capacity. If you require borrowings or finance in order to undertake the purchase, then the property cannot be held in the name of the superannuation fund. There must be a Bare Trust in place and the Bare Trustee holds the property on behalf of the superannuation fund.
The property cannot be held in the name of the superannuation fund with a mortgage registered on the title to the property. This is a very common error and a costly one when you are then required to transfer the property to the correct entity to avoid significant penalties in your superannuation fund. This may mean payment of stamp duty on the full value of the property in order to correct the error.
2. A lack of consideration of the purpose of the purchase
We have come across people who purchased property in their superannuation fund with the intent to develop or renovate the property and to use finance to do so.
This is not able to be undertaken under the current legislation and may mean that if the reason for your purchase is not properly considered by your professional advisor, you are left with a property which is not able to be used for that purpose.
A further example is that we have routine enquiries from clients who wish to use their superannuation fund to purchase a property for themselves or family to live in on a residential basis. Again, this is not allowed under the current rules and may result in a contravention notice being issued against your fund, with associated penalties.
3. Incorrectly prepared Bare Trust Deeds
We have also come across many Bare Trust Deeds, which were not prepared correctly by the professional advisor and do not comply with the ownership requirements. Unfortunately, this means both time and money must be spent in order to rectify this issue in order to ensure that your fund remains compliant.