A Bare Trust is set up only if you need to take out a loan (from a bank, a private lender, or any other source). The bare trust cannot be set up until you’ve identified the property the SMSF intends to purchase.
When you’ve identified the property and supplied us with the relevant details, we can set up your bare trust in a matter of hours. Simply copy the following Bare Trust Information section, paste it into an email, enter the required information, and send it to us.
Bare Trust information
Address, Lot Number, County, Parish, Title Reference and Plan Reference.
Who is the lender, Lender company’s name, address and ACN.
Total purchase price, loan amount, term of the loan in years and settlement date.
Please email this data to us at: email@example.com
It may be argued that the Bare Trust structure can be regarded as an in-house asset. Where an SMSF owns another entity 100%, its usually regarded to be an in-house asset, which is not allowed in an SMSF. However, the ATO gave specific guidance that a Bare Trust structure would not be regarded a breach of superannuation legislation. A copy of the ATO guidance can be found here.
What is the Bare Trust for and what does it consist of?
The Bare Trust is used when the SMSF wants to borrow funds from a third party for investment purposes. The Bare Trust consists of a Corporate Trustee, a Custodian Trust and a Bare Trust.
If the SMSF wants to set up a Bare Trust structure, how much does it cost to set up?
The Bare Trust structure can consist of up to 3 separate entities and each entity costs $950 to set up. The potential cost is $2,850 consisting of the following:
- Corporate Trustee – $950
- Custodian Trustee – $950
- Bare Trust – $950
Generally, if the lender is a Bank then they may require that your SMSFs structure has a Corporate Trustee. If you already have the Corporate Trustee set up, we can help you to set up the other 2 entities.
Should the Bare Trust Deed be signed before entering into the contract of purchase?
There are different state-based requirements about whether to sign the Bare Trust Deed before or after entering into the contract of purchase.
For NSW, TAS and ACT, the purchase contract must be signed and dated before the Bare Trust Deed.
For SA, QLD and NT, the Bare Trust Deed must be signed and dated before the purchase contract.
For VIC and WA, the Trustee can sign the purchase contract and the Bare Trust Deed in any order.
What happens when the loan is fully paid off?
Once the loan is fully paid off, the Bare Trust and Custodian Trustee is no longer needed and you will need to advise the Titles Office and also make sure to update each party relating to the property investment to be in the name of the SMSF. As per our understanding usually there won’t be any stamp duty implications as there is no change in the underlying beneficial ownership. However the rules differ from state to state. Please check with the Revenue Office of your state on the stamp duty obligations.
However, if you prefer a token amount can be left in the loan. By doing this, from a legal perspective the loan is still in effect and it avoids the need to change the ownership name to be under the SMSF.
Having said that, it is entirely up to you as a Trustee as to which approach to be undertaken.
How do I eliminate stamp duty when the loan is paid off?
When the loan is fully paid off and the title of the property is moved to the SMSF there is a possibility of stamp duty that can be levies. It can be argued that there is no change in beneficial ownership and therefore no stamp duty payable. But a transfer fee will be charged that is a minimal fee to adjust the name on title.
Another good option is to keep a token amount in the loan. Technically the Bare Trust can then continue. So it may be a good option to keep the loan structure in place.
Trustees can contact the titles office to determine the most beneficial approach for their SMSF.