The reason to have an SMSF is to build wealth for your retirement. So it’s important to make sure the fund’s investments are purchased in the right name. If something goes wrong, others could get their hands on an asset they have no right to.
The starting point with the ownership of an SMSF’s investments is the fund’s trustee. The fund’s investments are required to be in the name of the trustee. This will depend on whether the trustee consists of individuals or is a company where the members are directors.
What’s in a name?
The simplest way of owning fund investments is that they are held in the name of a company trustee which records it ‘as trustee for’ the SMSF. Any change in the directors of the company will not require a change to the company owner as trustee of the investment. However, if the SMSF trustee is made up of individuals, each name will be recorded on the investment ‘as trustee for’ the SMSF. A change of just one individual trustee will require a change to who legally owns each investment ‘as trustee for’ the superannuation fund. The change in the trustee may incur stamp duty and possibly other charges with the registry.
As a rule, a correct way to record ownership of assets held by an SMSF is:
For individual trustees:
John Smith and Jane Smith ATF (as trustee for) Smith Family Super Fund
For company as trustee:
Smith Co Pty Ltd ATF Smith Family Super Fund
If the fund asset is shares in a publicly-listed company it would be common for the share registry to record ownership as:
For individual trustees:
John Smith and Jane Smith <Smith Family Super Fund>
For company as trustee
Smith Co Pty Ltd <Smith Family Super Fund>
Sometimes the register of the fund’s investment will have enough space to record the names of each individual or the company trustee. But in some cases, the registry may limit the number of characters and may record the names of only one or two of the trustees. Sometimes the name of one trustee may be recorded but there will be an indication that the investment is owned jointly or as trustee. Make sure the fund records recognise that the investment is registered in the names of all individual trustees in case you are ever questioned by the fund’s auditor or a regulator.
Different assets, different rules
Some assets, such as real estate, are also subject to state-based laws. These laws can be restrictive in how the fund can show its ownership of the asset. As a result, you may need to prepare additional paperwork, such as a caveat or declaration of trust to support the fund’s ownership of fund assets. Legal advice should be obtained concerning the appropriate documents.
When it comes to real estate, the land titles registry will permit only the names of the individual trustees or corporate trustee to be recorded and not permit the name of the super fund to be included. In this situation the name of the super fund can be included on the contract of sale or other documents for the purchase or sale of the property.
It would be common for the land titles office to record ownership as:
For individual trustees:
John Smith and Jane Smith
For company as trustee:
Smith Co Pty Ltd
The land titles office will only record the legal owner of the property rather than the superannuation fund which is the beneficial owner of the property. However, the contract of sale would usually refer to the John Smith and Jane Smith ATF Smith Family Super Fund or, in the case of a company trustee as Smith Co Pty Ltd ATF Smith Family Super Fund. In some states the contract for sale may allow nominee arrangements which allow the trustees of the fund to be nominated prior to the settlement of the property.
In some cases, the fund may purchase or sell investments such as shares in private companies, units in private unit trusts and even artworks and collectables. Where there is no registry for a particular investment it should be ensured that the documents relating to the purchase of the asset or the loan clearly indicate the names of the trustees ‘as trustee for the [name of] superannuation fund’. If the fund has entered into a limited recourse borrowing arrangement the investment should be held in the name of the holding trust or custodian and not in the name of the trustees ‘as trustee for the superannuation fund’.
Why getting it right matters
The advantage of having fund investments in the correct names is that it clearly indicates the owner of the investments especially if it is required to be registered with an independent third party. First, the Superannuation Industry (Supervision) (SIS) Act requires fund investments to be kept separate from personal assets of the fund. This means that you need to manage your SMSF assets independently of your own personal or business affairs. Second, where there is an individual trustee who is having business troubles and goes bankrupt the investments should be clearly identified in the name of the trustee. Third, clear separation of fund investments between those owned by the fund and those owned personally will help to reduce disputes for family law purposes and when benefits become payable from the fund.
For compliance purposes under the SIS Act, each year investments are required to be valued on a market basis. There are Australian Taxation Office (ATO) guidelines on how to value investments and other assets at market value for tax and SIS purposes which helps ensure the investment is valued correctly.
Information about a particular investment is important especially when it is unique. Those investments registered on the various exchanges or with regulators such as the land titles office are easier to identify compared to those investments which may be boutique and unconventional.
What you need to do
- Make sure the investments of the SMSF are in the names of the trustee and recognise they are held in trust for the SMSF;
- Where there is a register of a particular investment, such as listed shares or real estate, make sure the trustee’s name is recorded on the relevant documents including contracts of sale;
- Where there is no register for a particular investment, such as private company shares, units in a private unit trust or loans make sure the name of the trustee is recorded as holding the shares or units in trust for the SMSF or the loan documents are in the trustee(s) name as trustee of the relevant superannuation fund; and
- Check to see that the income and expenses which relate to non-arm’s length transactions comply with the legislation or seek advice to find out whether they comply.
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