29/03/2018

A question that we often get asked is what can be done where superannuation assets are unable to be held in the fund’s name, most often as a result of State legislation not recognising a trust arrangement for registration purposes, for example registration on a State’s land titles register or on a company shareholders register. How does the fund prove that it is the owner of the registered asset even though the register does not mention the fund?

Reg 4.09A of the regulations to the Superannuation Industry Supervision Act (1993) requires that trustees of an SMSF keep money and other assets of the fund separate from any money or assets held by the trustee.

Accordingly, Reg 4.09A may be contravened where property is registered on title in the names of individual trustees and no reference is made to the fund as it could be argued that ownership of the property is not separate from the trustee’s other assets.  Indeed it appears that the property is owned by the trustee in their own right rather than as trustee of the fund.

The issue has the potential to cause great harm as any declaration by the trustee in any other document that it is holding the property on trust for the fund could in some States be interpreted as being a separate declaration of trust for which full ad valorem duty is payable.  That includes in the description of the buyer in a transactional document which leads to double duty being imposed – once on the acquisition of the property and again on the declaration of trust constituted by the description of the trustee acting as trustee of the fund.

Great care must therefore be taken whenever a trustee is asked to sign a document affirming or confirming the existence of the trust or the trustee’s role in holding assets as trustee.

Whilst the ATO does not mandate it, they encourage the trustee to create a ‘caveat, instrument or declaration of trust’ where assets of an SMSF are not held in the fund’s name. They seem not to have considered the prospect of additional duty, or having done so to simply be saying ‘not my problem’.

So how can the trustee avoid this minefield?

Firstly, 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.  Resolutions have been held not to be declarations of trust.

Secondly, trustees can consider signing a so-called Deed of Acknowledgement in which the trustees confirm and recognise that they acquired the property using money in the trust and pursuant to the terms of the trust and at therefore holding the property for the super fund (where for any reason it is difficult for the trustees to clearly show that the property was acquired using fund money, this could be left out, though it is hard to understand why that should be difficult – a money trail should always be available ensured in such transactions).

The Deed of Acknowledgement 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.

If you need to assert the trust relationship and ensure compliance with the super laws call Townsends Lawyers for a quote on a Deed of Acknowledgement that won’t break the bank.  

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