SMSF

A Bare Trust is set up only if you need to take out a loan. The bare trust cannot be set up until you’ve identified the property the SMSF intends to purchase. When you’ve identified the property with the relevant details (below) an accountant can set up your bare trust. Here is the list of information you need to provide: 

Property details: Full address of the property. 

Bank Details: Who is the lender, Lender company’s name, address and ACN.

Loan Information:  Total purchase price, loan amount, term of the loan in years and settlement date.

Regulations require that the property acquired with borrowed monies must be held by a bare trust with the SMSF being the beneficiary of the trust. 

The bare trust is only the registered holder of the property until the loan is repaid. The SMSF will receive rental income from the lessee and will pay interest to the lender.

When the loan is repaid the legal ownership of the investment property will revert to the trustee of the SMSF.

The trustee of the SMSF cannot be the same as the trustee of the bare trust, this may in some instances require a corporate trustee for both entities, again dependent on the lenders requirements.

Trustees of SMSFs are now in a position to buy a commercial or residential property through their SMSF. Providing the SMSF has a deposit that meets the lenders' loan valuation ration (LVR) requirements the lender will provide the balance of the purchase price. Banks may require a minimal deposit but trustees should be aware that negative gearing in a super fund is not tax effective due to the reduced tax rate applicable to super funds.

Legislation requires that the loan must be a Limited Recourse Borrowing Arrangement (LRBA). This facility allows the lender to hold the property as security however any existing or other assets held by the SMSF cannot be used for additional security.