{"id":8878,"date":"2018-10-01T00:01:35","date_gmt":"2018-09-30T14:01:35","guid":{"rendered":"http:\/\/www.dbalawyers.com.au\/?p=8878"},"modified":"2019-08-14T14:02:51","modified_gmt":"2019-08-14T04:02:51","slug":"why-should-the-deposit-be-paid-by-the-smsf-trustee","status":"publish","type":"post","link":"https:\/\/www.dbalawyers.com.au\/contributions\/why-should-the-deposit-be-paid-by-the-smsf-trustee\/","title":{"rendered":"Why should the deposit be paid by the SMSF trustee?"},"content":{"rendered":"

Daniel Butler<\/strong> (dbutler@dbalawyers.com.au<\/a>), Director, DBA Lawyers <\/em><\/p>\n

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When self managed superannuation funds (\u2018SMSFs\u2019) borrow to acquire real property, one of the common mistakes is not having the deposit paid from the bank account of the SMSF trustee. This article highlights the importance of the deposit being paid the SMSF\u2019s bank account and identifies some possible rectification options where the deposit was paid by another party.<\/p>\n

Why should the deposit be paid from the SMSF\u2019s bank account? <\/strong><\/h3>\n

The source of the deposit is important as it affects the duty efficiency of the holding trust arrangement. On first blush, a transfer of dutiable property from the holding trustee (also commonly referred to as the bare trustee or custodian) to the SMSF trustee gives rise to a duty liability in the applicable state or territory where the asset is located. However, an exception generally applies across all jurisdictions where the relevant criteria is satisfied and dutiable property is transferred to a real purchaser (eg, the SMSF trustee) by an apparent purchaser (eg, the holding trustee) that was previously holding the asset on trust for the real purchaser.<\/p>\n

In order for the SMSF trustee to be the real purchaser, the SMSF trustee must provide all of the purchase monies (even if these include borrowings by the SMSF trustee to fund that purchase). Practically, this means that the deposit must also be paid from the SMSF\u2019s bank account.<\/p>\n

Best practice is to retain evidence showing that the SMSF trustee provided all of the purchase monies. The evidence can be in the form of bank statements in the name of the SMSF showing the money leaving the bank account. The evidence may be needed many years later when the borrowing has been fully repaid and the SMSF trustee seeks to transfer the asset from the holding trustee to the SMSF trustee, eg, in 15 years\u2019 time when the final loan repayment is made and the title needs to be transferred from the holding trustee to the SMSF trustee.<\/p>\n

If the deposit is not paid from the SMSF\u2019s bank account, there is a risk that an additional duty liability may arise when the asset is transferred from the holding trustee to the SMSF trustee. This is because the revenue offices in all Australian jurisdictions have broad discretion in these matters and the document trail concerning the deposit will not be perfect in respect of all the purchase monies coming from the SMSF trustee.<\/p>\n

Separately, if the SMSF is borrowing from a bank, there is some risk that the bank (or the lawyers acting for the bank) may object to the deposit in a way that delays or jeopardises the loan. Furthermore, although there may be some possible rectification options, the bank might not accept a particular rectification option, which might also delay or jeopardise the loan.<\/p>\n

Why is the deposit not paid from the SMSF\u2019s bank account? <\/strong><\/h3>\n

While not recommended, there are various reasons why the deposit is sometimes not paid from the SMSF\u2019s bank account. These include but are not limited to the following:<\/p>\n