28/04/2015

The ATO wants you to be clear on whether super trustees are holding real estate for themselves or their super fund.  But how can the trustees do this without risking a massive stamp duty bill?

Recently an auditor sought our opinion about whether the individual trustees of their super fund had to do more than just be registered on the title of the fund’s property, given that the land titles office in the relevant State refuses to record on the land register that the property is held by those registered proprietor/trustees pursuant to a trust constituted by the fund.

The auditor pointed out that in its booklet “Running Your Self Managed Superannuation Fund” the ATO says

“We prefer the assets [of the fund] to be in either the:
•    names of all of the individual trustees as trustees for your fund, or
•    name of the company as trustee for your fund in the case of a corporate trustee.
In certain States, legislation may prevent you from holding assets using your fund’s name at all. In these circumstances, you are encouraged to execute a caveat, instrument or declaration of trust for the asset. For more information, refer to the relevant State or Territory titles office.”

Relevantly Reg 4.09A says that “the trustee of a regulated superannuation fund that is a self managed superannuation fund must keep the money and other assets of the fund separate from any money and assets … that are held by the trustee personally”.

On the face of it, being registered as the registered proprietor of real estate simply in the name of the trustee without reference to the trust does not appear to breach this regulation as such, because the ownership of the property is separate from the trustee’s other assets.

In ATO ID 2014/7 the ATO ruled that there had been a breach of the regulation where money owned by the fund was in the same bank account as money owned by several other unit trusts even though the money all ‘belonged’ to the same family.  It was a clear breach because the money was not held separately.  The ATO ID refers to the relevant general sections of the SIS Act and to regulation 4.09A but lists no other references that are much use.

There are a number of things of significance in the ATO’s comments in their booklet.  The first is that the reference to ‘using your fund’s name’ is not a legal requirement as there is no obligation on a trustee to reveal their trustee status when transacting on behalf of the trust, or in this case, super fund.

Indeed in some States, particularly NSW, a reference to the trust could potentially see the description being interpreted to be a separate declaration of trust for which full ad valorem duty is payable.  You can see why we go to such lengths to advise clients to simply transact in the name of the trustee and not mention the fund in transaction documents if they can avoid it.

The second thing to note is that all the ATO is saying is “you are encouraged to” – not “you are obliged to” or “you must” or “you are legally required to” or even “we expect you to”.  In other words the ATO themselves are not pushing this very hard.

The third is that their reference to perfecting the situation by ‘caveat, instrument or declaration of trust’ could have catastrophic duty implications in some States, not to mention the additional trouble and cost of the preparation and registration of such documents.

The trustees should have clear resolutions in advance of the transaction stating clearly that they are acting in the transaction, and in respect of any property they acquire as part of the transaction, as trustees for the super fund and not in their own right.  

If that is not enough (it should be, particularly where it can be shown that the purchase money came from the fund) it may be possible for the trustees to sign an ‘Acknowledgement Deed’ whereby the trustees acknowledge that they are holding the property for the fund.  

Such a document must be very carefully drafted so as not to constitute a new declaration of trust with the accompanying stamp duty problems.  

The Acknowledgement Deed may not be (and in most States probably isn’t) registrable on the register of land titles but could be registered on the State’s General Register of Deeds in order to prove its existence in case the ATO or any creditor of the trustee company wanted proof of the status of the ownership of the property.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.