01/01/2013

While the Superannuation Industry (Supervision) Act 1993 (Cth) does not expressly authorise or prohibit overseas investment, there are some important aspects that should be considered before booking your flights to check out that property in the Bahamas.

Trust deed

The Trustees must ensure that the SMSF Deed permits such an investment, or at very least does not contain any provisions which expressly prohibits overseas investments or limits the fund’s investments to Australia only. 

Investment strategy

The investment strategy also needs to permit such an investment and consider the specific risks associated with overseas investments, including currency risks, local tax treatment of rental income and expenses, withholding taxes, regulatory risks and sovereign risks.

Local advice

The SMSF should seek advice from a local practitioner in the jurisdiction they wish to purchase so that they are aware of any restrictions on investments by foreigners or foreign companies, stamp duty requirements, local taxation issues and general property law issues which the SMSF will need to comply with.  The SMSF should ensure that the local laws will not affect the fund’s ability to comply with the superannuation regulations surrounding the transaction.  

Limited recourse borrowing

For the SMSF to borrow in order to acquire overseas property the purchase and associated loan will still need to meet the s67A requirements.  

Firstly, the SMSF must consider whether the jurisdiction in which the property is located has sufficient title records to confirm that the property is a ‘single acquirable asset’. 

Secondly, the SMSF should ensure that the only property of the SMSF which is available as security for the loan is the property acquired with the loan.  Often Australian lenders are not willing to accept that the only SMSF property available is located overseas.  Alternatively the SMSF may find it difficult to find an overseas bank that understands and accepts the limited recourse nature of the security for the loan.  

Local laws would need to be considered on the issue of whether there are any duties or taxes payable when the holding trustee attempts to transfer the property back to the super fund after the loan has been discharged.  

Restriction on personal use

Finally, just like in Australia, the Trustees are unable to purchase property and use it as a holiday home for themselves or family members.  So there goes that wonderful idea of the place in the Bahamas…

If you need assistance or have any questions in relation to this article, please contactTOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.