Just What Is A Self Managed Super Funds (SMSF) And How Does It All Work Buying Property?
SMSF’s can often be seen as very complex. This is by design as the Government (and yourself) require your superannuation to be protected for your retirement needs. Information on how superfunds can buy investment property is sometimes sketchy, second-hand and not well understood.
Below is some information on Superfund structure and the “Holding Company” along with “Bare Trusts”.
The “Trustee” of a Superfund can be 2 individuals (min of 2 – max of 4 for SMSF). Alternatively the Trustee can also be a Company (a Corporate trustee), this can be 1 person as a Sole Director or 2 or more people as Director/Secretary. The Trustee is the person/s running or managing the Superfund as individuals or alternatively as Director/s of a Company.
A “Holding” company for the superfund property/s will be required to hold the property/s where a debt is owed (Mortgage). This is because the Superfund itself can only hold property directly where it is debt free (superannuation is all about building assets). Once a Holding company has been created it can potentially hold numerous properties on trust (like a hub) by way of specific Bare Trust documents for each property.
The “Bare Trust” itself is a short Deed of agreement between the Trustee of the Superfund and the Holding company whereby the Holding company carries the mortgage, manages and agrees to hold the property on trust for the superfund. To create a Bare Trust there must be 1) Trustee for the Superfund 2) Holding Company & 3) a property.
A superfund structure is normally a company as trustee for the fund and sometimes individuals act as the trustee for the super fund i.e.
ABC Superfund Pty Ltd as Trustee for ABC Superfund (company as trustee for fund)
Our Names as Trustee for ABC Superfund (individuals as trustee for fund)
Note: a single person cannot be a Trustee – if this is the case a company Trustee for the superfund will also need to be created and then the single person can act as sole director of the Trustee company.
The superfund can only hold the property directly (usually by the company or individual trustee) where no debt or mortgage is on the property.
Where there will be a debt or mortgage on a property, another “third Party” or “Holding” company is required to be the trustee for the property. The superfund cannot directly lend money for a property. So the “Holding” company (owned and directed by you) is used to carry the mortgage, manage and hold the property for the superfund by way of a Bare Trust document (an agreement between the superfund Trustee and the Holding company). Your loan / mortgage on the property will be with the “Holding” company and you as individual/s members of the superfund and Director/s of the Holding company will guarantee the “Holding” company loan to the lender.
The “Holding” company can be any name you wish that is available to be registered with ASIC. The “Holding” Company will then be the hub to which you can hold a number of properties with by way of separate Bare Trust documents.
Example Overall Structure
ABC Superfund Pty Ltd as Trustee for ABC Super Fund (company as trustee for fund)
My Name as Trustee for ABC Superfund (individual as trustee for fund)
ABC Holdings Pty Ltd
My 1st Investment House Bare Trust
Trustee Or Holding Company Creation
Generally a company will have one or more Director/s and one or more Shareholder/s. In the circumstances we would make a nominal shareholding of $1.00 per share. Example is one Director and one Shareholder of 10 x $1.00 share in the company or 2 Directors and 2 Shareholders with 5 shares at $1.00 each in the company etc. Having more than 1 or 2 shares being issued allows the ability to have other shareholders at a later point in time without the need to issue further shares in the company.
The Australia Tax Office (ATO) website has numerous Fact Sheets available and information on the steps needed to create your own SMSF. Your Accountant will also be in a position to advise you on your specific financial position.
Contact us for more information or to arrange a consultation.
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