Business, Investor & SMSF Specialists Working With The Numbers & Thinking Outside The Numbers
DISCLAIMER GENERAL GENERAL INFORMATION ONLY INFORMATION ONLY ONLY
DOES NOT CONSTITUTE ADVICE CE
DISCLAIMER – TODAY’S PRESENTATION
PLEASE CONSULT A QUALIFIED PROFESSIONAL BEFORE TAKING ANY ACTION SE CONSULT A QUALIFIED PROFESSIONAL BEFORE TAKING ANY ACTION Copyright © 2016
DOES NOT TAKE YOUR PERSONAL SITUATION INTO ACCOUNT
Our Crusade GENERAL INFORMATION ONLY
We are passionate about everyone maximising their retirement benefits and minimising administration along the way
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PROSPERITY PLAN – COMBINATION OF FACTORS GETS ULTIMATE RESULTS SHARES
STRUCTURES
STRUCTURES
SHARES
EMPLOYER CONTRIBUTIONS CONTRIBUTIONS
SMSF
INVESTMENT PROPERTIES INVESTMENT PROPERTIES
INSURANCES
TAX DEDUCTIONS
TAX DEDUCTIONS
FUNDAMENTALS OF BARE TRUSTS
WHAT
ARE
GENERAL INFORMATION ONLY
BARE TRUSTS?
• Mechanism that allows SMSF’s to purchase properties with the aid of finance (that is, leverage) • Property’s title is legally held by “Bare Trust” until loan is fully repaid • SMSF is still the beneficial owner (explained further later)
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FUNDAMENTALS OF BARE TRUSTS CONTINUED
WHAT
ARE
GENERAL INFORMATION ONLY
LOANS
AVAILABLE FOR?
• Investment purposes only • Refinances • Loans secured by first mortgage only
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FUNDAMENTALS OF BARE TRUSTS CONTINUED WHAT GENERAL ARE LOANS
NOT AVAILABLE FOR?
INFORMATION ONLY
• Owner occupied property • Renovations or repairs or improvements • Increases • Building Loans (that is, progress claims)
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FUNDAMENTALS OF BARE TRUSTS CONTINUED KEY
CONSIDERATIONS WITH LOANS GENERAL INFORMATION ONLY
• The SMSF borrows the money and pays back the interest and/ or principal • Loan can only purchase a single asset and any costs of acquisition • Asset bought must be one that a SMSF can buy Copyright © 2016
FUNDAMENTALS OF BARE TRUSTS CONTINUED GENERAL INFORMATION ONLY OTHER LOAN FACTS
• The loan is limited-recourse (that is, in default, lender can only sell the asset bought to meet any money owing) • This type of finance will typically attract higher interest rates and have higher set up costs • LVR’s can now be up to 80% • Lender may have postcode restrictions for allowable purchases • Best to avoid any personal guarantees (may not be possible)
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FUNDAMENTALS OF BARE TRUSTS CONTINUED. GENERAL ONLY BARE TRUST KEY INFORMATION CONSIDERATIONS
• Asset bought held on trust for the SMSF whilst loan is repaid • Needs a corporate trustee – ALL members of the SMSF should be directors and shareholders • This company should not trade either • The trustee of the SMSF MUST be different to the trustee of the Bare Trust • Should only play minimal role (that is, hold legal title only)
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FUNDAMENTALS OF BARE TRUSTS CONTINUED GENERAL BARE TRUST KEY CONSIDERATIONS INFORMATION ONLYcont …
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ABC PTY LTD
XYZ PTY LTD
SMSF
BARE TRUST
FUNDAMENTALS OF BARE TRUSTS CONTINUED GENERAL ONLY cont … BARE TRUST KEY INFORMATION CONSIDERATIONS
• No bank account • No TFN • No Tax Return • Avoid the Bare Trust being active in any way at all costs • No GST registration required if Bare Trust is not active
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FUNDAMENTALS OF BARE TRUSTS CONTINUED GENERAL INFORMATION ONLY ? WHO SIGNS CONTRACT TO PURCHASE
• Each state has different requirements regarding who is noted on the purchase contract as well as Stamp Duty requirements for Bare Trust deeds at settlement • It is the trustee of the Bare Trust who buys the property legally • Please complete purchase contracts with care
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FUNDAMENTALS OF BARE TRUSTS CONTINUED AVOIDING
DOUBLE
STAMP DUTY
GENERAL INFORMATION ONLY • If name of purchase on contract is noted correctly AND the Bare Trust deed is used and signed and
stamped correctly THERE SHOULD BE NO MORE • Stamp Duty charged when legal title of property passes to SMSF (that is, when the loan is fully repaid) NOR SHOULD THERE BE • Any Capital Gains Tax when legal title of property passes to SMSF (reinforces the need for Bare Trusts not to be active) • Appropriate legal advice sought for – review of SMSF Deed, Bare Trust Deed & signed contract, stamping Bare Trust Deed & settling property (with appropriate searches, etc.) Copyright © 2016
FUNDAMENTALS OF BARE TRUSTS CONTINUED GENERAL INFORMATION ONLY LEASE AGREEMENTS
• Bare Trust should be named on the lease • Property agent should pay the rent direct to the SMSF • Our preference is for monthly rental statements • Have the agent pay as many running costs as possible (for example; council rates, water rates, insurance, repairs, etc.)
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FUNDAMENTALS OF BARE TRUSTS CONTINUED INSURANCE
GENERAL INFORMATION ONLY
• Requirements of insurers may vary • If insurer requires the policy in name of Bare Trust, the policy should record that the SMSF has a beneficial interest in the property • All premiums should by paid by the SMSF • Policy should also note the lender’s interest too
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SUMMARY OF PROCESS TO PURCHASE A PROPERTY IN A SELF MANAGED SUPER FUND GENERAL 1. Obtain pre-approval for the loanONLY from a financier (if possible, if not get an INFORMATION
indicative approval), to ensure that your loan and rollovers give you enough funds to buy the property (including associated setup costs, stamp duty and lender’s costs)
2. If you do not have a SMSF, set up a SMSF (ensure it has the power to borrow and buy a property) – allow 1 to 2 weeks 3. If a new SMSF is established, arrange to rollover your current super into your new fund’s bank account (being careful not to rollover your funds fully without having the appropriate insurances in place first in your new SMSF) 4. If you have an existing SMSF, check the deed (to ensure the fund can borrow and buy property)
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SUMMARY OF PROCESS TO PURCHASE A PROPERTY IN A SELF MANAGED SUPER FUND GENERAL 5. If the deed does not allow for this, get it amended INFORMATION ONLY
6. The fund must review the Investment Strategy to ensure that it caters for a property purchase 7. Amend the Investment Strategy, if required 8. The Bare Trust and Corporate Trustee are established – allow 1 to 2 weeks 9. Find a suitable property and sign the contract, paying the relevant deposit from the fund’s bank account (after you have banked the relevant rollover(s)) 10. Send the signed SMSF Deed, signed Bare Trust Deed and copy of the purchase contract to a solicitor for thorough review and to commence settlement process
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SUMMARY OF PROCESS TO PURCHASE A PROPERTY IN A SELF MANAGED SUPER FUND GENERAL 11. Provide additional documents required by lender to obtain finance INFORMATION ONLY
12. At settlement: - Loan advanced by financier - Balance of funds provided from Fund’s bank account - Bare Trust Deed should be stamped (ensure it is stamped ASAP after deed is setup and signed, prior to settlement and after contract is signed - is preferred) - Mortgage of property is registered - Property will be rented out (after settlement)
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SUPERIOR ACCOUNTING GROUP PO Box 922, Mount Eliza VIC 3930 13 Mereweather Ave Frankston, VIC 3199
www.superioraccountinggroup.com.au Phone: (03) 9787 8906 Fax: (03) 9783 1557 facebook.com/SAgroup.accountants
