SMSF & Property

CASE STUDY

In this case study we will consider how a superannuation fund can acquire property from an unrelated party by using an instalment warrant.

XYZ Superannuation Fund

The XYZ superannuation fund creates an instalment warrant trust – this trust will hold the asset for the superannuation fund. The superannuation fund will hold a beneficial interest in the assets of the trust. The fund will only acquire the ownership of the asset once all prescribed payments have been made. The fund has the right but not an obligation to acquire the asset.

The superannuation fund enters into borrowing for the purpose of acquiring the asset. The fund will be responsible for the repayment of the loan and out of pocket expenditure not met by the tenant. The fund will receive the income from the asset.

Lender

The lender provides finance for the transaction. The loan is a non-recourse loan. The lender is only able to acquire the asset in the event of the fund defaulting on the loan or upon the sale of the asset when the superannuation fund trustees elect not to complete the acquisition of the asset.

Trust

Generally this will merely hold the asset on behalf of the fund and will not perform operational functions such as rent collection. The trust will be a fixed trust (i.e. not a unit trust) with the superannuation fund and its trustee/members being the beneficiary of the trust.

POTENTIAL TAX CONSEQUENCES OF AN INSTALMENT WARRANT

Stamp duty

Where the trust is not in place at the time of signing the contract, to buy the asset, the fund may find that it is paying double the stamp duty unless a concession is available. Where Investrend’s recommendations are followed there will be no double stamp duty.

GST

The trustee needs to determine if the trust is operating an enterprise and must therefore be registered for GST. This will depend on the assets of the trust. For example, business real property is likely to be subject to GST on income. The transfer from the trust SMSF will be GST free for investment property where the Investrend recommended model is adopted.

Capital Gains Tax

When the asset passes to an entity other than the beneficial owner there can be capital gains tax implication as there has been a disposal. This can impact both the asset and the right to acquire the asset. The transfer from the trust SMSF will be tax free for investment property where the Investrend recommended model is adopted.

Land Tax

The superannuation fund has a beneficial interest in the property. It will therefore be grouped with the other property assets of the fund for the purpose of determining any land tax liability.
.