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Leon
Leon, Solicitor
Category: Australia Law
Satisfied Customers: 42670
Experience:  BEc Dip Ed, Dip Law (SAB) MTax (UNSW)
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I am considering purchasing an investment property through

Customer Question

I am considering purchasing an investment property through my discretionary family trust fund. Therefore, the title to the property will be held indirectly through the family trust and with corresponding personal guarantees from the trustees.
The purpose of this structure is to introduce co-owners at a later date who will then share ownership of the property with appropriate agreements in place.
Q1. Is this approach realistic, i.e. assuming the trust can get the finance and purchase the property in the first instance, is it true that the trust can then form agreements with others and share ownership without changing the title and without the need to get additional approvals from the mortgagor.
Q2. If the answer to Q1 is yes, can one of the co-owners be an SMSF.
Q3. Is there a special process I need to follow or special documentation put in place or any special terminology I need to use to avoid complications and mis-understandings at any stage of this process.
Submitted: 1 year ago.
Category: Australia Law
Expert:  Leon replied 1 year ago.

Good Morning

My name is ***** ***** I am a NSW Solicitor. Thank you for your question, and will do my best to assist you with your question. Please understand this is not legal advise Please understand this is not legal advise but a guide to assist you.

If you increase the beneficiaries in the trust you will be up for stamp duty on the full value of the trust and it is on the value of its assets.

You cannot increase the beneficiaries it will cost you money.

SMSF have special rules and you will need to see a SMSF specialist accountant about this. I personally do not believe an SMSF can be a beneficiary in a family trust.

You should not be doing this on your own. The slightest mistake will cost you tax and possible penalties. Once established you cannot change it without costs. The costs can be quite high.

You need an accountant to assist with the structure and the establishment of the trust.

I hope this makes sense and is of assistance. If there is nothing further

thank you for using my services.

If I have missed anything, or you have any further questions please let me know

If there is anything else in the future please do not hesitate to ask.

Please do not forget to leave positive feedback.

Regards

Leon

Customer: replied 1 year ago.
Hi Leon,My understanding is that it is legal for discretionary trust distributions to a super fund so long as the Trust Deed and the Super Deed can accept the payment. Acknowledging tax implications of "special income" as a distribution to the SMSF.Are you able to confirm whether this is true or not.Ref: http://www.bellarminelawyers.com.au/BellarmineLawyersPtyLtd2431/Page/28022/FAQs+Trusts.aspx
CAN A BENEFICIARY BE ANOTHER TRUST? Yes, provided the beneficiary is the trustee of the other trust and is acting in its capacity as trustee of that other trust. [which is the case here]So I am using this forum to find out what can and can't be done. Once I understand the legalities and implications, then I can be better prepared for implementation using solicitors and accountants as you suggested.The family trust I am utilizing is new so does not have any stamp duty implications."You should not be doing this on your own. The slightest mistake will cost you tax and possible penalties. Once established you cannot change it without costs. The costs can be quite high."Please elaborate on costs and penalties you are referring to here.Regards, Henry
Expert:  Leon replied 1 year ago.

Good Morning

I cannot comment too much about this.

But I know the rules of an SMSF are very strict.

I know they can hold units in a unit trust and receive funds from that but a discretionary trust I cannot comment but I believe from my past studies it is not permitted.

If the Trust deeds are not correctly set up and you breach the Acts there are penalties for breaches. Further yoyu may not get tax benefits etc.

There are many types of trusts and you need to ascertain what and SMSF can be an owner of.

Customer: replied 1 year ago.
Hi Leon,I did not get any value from this conversation. You did not provide me with anything I did not already know. What happens now.
Customer: replied 1 year ago.
I do not want to rate you poorly, I just dont think you added anything.
Expert:  Leon replied 1 year ago.

I can only tell you what the law says

I am happy to continue but need to know what else you are after?

I have also spoken to an accountant I work with and he has confirmed a Self Managed Super Fund cannot be a beneficiary under a discretionary trust.

It can be of a fixed unit trust where there is a guarantee of income earned but not a discretionary trust

Customer: replied 1 year ago.
Hi Leon,Can I change my family trust into a unit trust or do I need to start with a new unit trust. If so, how do I do that.Regards, Henry
Expert:  Leon replied 1 year ago.

Good Evening

No you cannot change it. If it does no own assets then it would be simpler to start a new trust.

Customer: replied 1 year ago.
Hi Leon,I can get a unit trust document from clear docs for $137, is there any other legal registration processes or fees involved other than just completing the document details and getting signatures from all parties.If a unit trust invests in property, can the mortgage be in the name of the unit trust only, or does the lender need to know who else is a member of the unit trust and then require each member to be responsible for the mortgage and each member to have their name on the title.
Expert:  Leon replied 1 year ago.

Good Morning

I cannot give you this information because any mistake can be a problem.
I never recommend people set these up themselves because of tax implications

Contact Clear Docs and make sure that what ever you get will comply with the SIS Act and allow the superfund to own units.
If this is done the wrong way you can find yourself in a mess.

The mortgage has to be in the name of the unit trust as it will own the property but the Superfund cannot be exposed in any way

Customer: replied 1 year ago.
Thanks Leon,If I borrow money and then lend that money to my SMSF which then buys a rental property, would the SMSF own the property entirely and any negative gearing, depreciation and other costs be limited to the SMSF accounts or can I personally claim deductions from this investment.If I lend to the SMSF at 0% interest, so that I make a personal loss on the loan to the SMSF, is this loss then tax deductible for me personally.Would this be a safer and simpler structure than unit trusts.
Expert:  Leon replied 1 year ago.

Good Afternoon

No you cannot claim deductions for anything in the name of another entity.
Also It is not legal to lend money to your own fund.

The deductions etc are all in the fund alone.

I hope this assists

Customer: replied 1 year ago.
Hi Leon,Apparently it is legal to lend an SMSF money to invest.I dont think we are getting anywhere so I am ending this conversation.Regards, Henry
Expert:  Leon replied 1 year ago.

Good Morning

The SMSF cannot owe money. Any loans have to be to a bare trust and not the SMSF.

All the best

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