ByLawyers News and Updates

SMSFs – New precedents – Retainer instructions

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We have published two new Retainer Instructions precedents in our Self Managed Superannuation Funds Guide.

The Retainer Instructions – Self managed superannuation fund is designed to assist practitioners when taking instructions from clients who are establishing a new fund. It covers all of the essential information required for the superannuation trust deed, including trustee and member details.

The Retainer Instructions – Existing self managed superannuation fund is designed to be used when a client wishes to make changes to an existing self managed superannuation fund that has already been established. It can be used to record instructions for a variety of situations including:

  • changing the fund trustee;
  • amending the rules of the fund;
  • making a new death benefit nomination or reversionary pension nomination; and
  • establishing a limited recourse borrowing arrangement.

Retainer instructions, which appear in “Getting the matter underway’ on all By Lawyers matter plans, are not only a useful precedent for file opening and matter management, they are a critical risk-management tool ensuring that all necessary information is obtained from the client and recorded.

Superannuation and downsizing

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The By Lawyers Self Managed Superannuation Guide has been updated to provide greater detail about contributions to superannuation as a result of residential downsizing.

From 1 July 2018, superannuation fund members aged 65 and over who downsize by selling their principal place of residence are able to contribute up to $300,000 from the proceeds of sale into their superannuation fund as a non-concessional contribution. Both members of a couple can take advantage of the concession for the same family home, allowing up to $600,000 per couple to be paid into superannuation from the sale proceeds of the family home.

Downsizing contributions are exempt from inclusion in the $1.6 million total superannuation balance cap. Instead, the contribution is included when the total superannuation balance is recalculated at the start of the new financial year.

This measure is available to superannuation fund members who have held their principal place of residence for 10 years or more, for contracts that are exchanged after 1 July 2018. The contribution must be made to the fund within 90 days of settlement of the sale.

Importantly, despite the term ‘downsizing’, there is in fact no requirement to purchase another home.

For more information about superannuation contributions, see the By Lawyers Self Managed Superannuation Funds Guide.

Self managed superannuation funds

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Many clients choose, often on the advice of accountants, to establish a private superannuation fund rather than invest their superannuation in an industry or retail fund.

The fund is established by a Superannuation Deed and the fund itself is not a legal entity. The Trustee of the fund is the relevant legal entity, holding the assets of the fund on trust for the members of the fund. The Trustee may be one or more natural persons, usually members of the fund, or the Deed may appoint a corporate Trustee. It is the Trustee that enters into contracts on behalf of the fund and becomes the registered proprietor of property owned by the Fund. Section 37 Transfer of Land Act prohibits the notation of a trust on a certificate of title so, whilst reference to the purchaser on a contract as being AS TRUSTEE FOR or ATF is permissible, no reference to the trust capacity is permitted on the Transfer of Land. Accountants, and the ATO, prefer to see reference to the trust capacity on the contract but it is not strictly necessary.

Superannuation funds cannot purchase a property that is used as a residence by a member or related party but can purchase other residential property, or commercial property. Subject to contribution rules, a member can transfer a property to a SMSF and a duty exemption exists pursuant to s 41 Duties Act provided that no consideration is paid by the fund to the member. Alternatively, a member might sell a property to the fund, thereby extracting funds from the fund, but duty must be paid on the value of the property transferred. The Trustee must lodge a Notice of Trust Acquisition pursuant to s 46K Land Tax Act but land held by a Trustee of a SMSF does not attract special land tax.

As superannuation contributions receive the benefit of substantial tax concessions, Government policy requires protection of superannuation funds to avoid dissipation of those funds. Therefore borrowing by a SMSF is regulated and may only be conducted in accordance with the Limited Recourse borrowing regime. This requires the establishment of a separate bare trust, the purpose of which is to hold the property on trust for the trustee of the SMSF, borrow any necessary loan funds using the property as security and, upon repayment of those loans funds, transfer the property to the SMSF Trustee. The loan agreement that the bare trustee enters into acknowledges that, in the event of default, the lender has Limited Recourse to the property that has been purchased and offered as security and that there is no recourse to other assets of the SMSF.

If the bare trust has been established prior to entering into the purchase contract then the purchaser will be the trustee of the bare trust. If the Trustee of the SMSF has entered into the purchase contract before establishment of the bare trust then the SMSF Trustee nominates the trustee of the bare trust to be the transferee.

PRECEDE

Self Managed Superannuation Funds are active participants in the property market.

Tip Box

•It is the Trustee of the SMSF rather than the Fund itself which must be the purchaser and registered proprietor

•SMSF may borrow to fund a purchase but those borrowings must be in accordance with the Limited Recourse Loan regime

•Whilst written for Victoria this article has interest and relevance for practitioners in all states

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