David Busoli, principal of SMSF Alliance, said a key consideration after the repayment of a limited recourse borrowing arrangement is the transfer of the property title to the SMSF trustees.
“Although it might be advisable, it doesn’t need to be done,” Busoli said.
“If no transfer occurs, the management of the property remains unchanged. The restrictions on improvements or changes of use remain but, if these are not intended, they aren’t relevant.”
However, he said if a redevelopment of the site is planned in future, the property title will need to be transferred beforehand.
“Transferring the title will remove ongoing costs associated with the running of the bare trust but these will generally be minimal except for the costs, including ASIC fees, associated with the bare trust’s corporate trustee,” he said.
He added that transferring the legal title to the SMSF trustee can streamline the SMSF’s legal framework but it comes at a cost.
“The transfer should not incur stamp duty, but it will attract legal fees for the conveyance. If stamp duty applies, possibly due to faulty establishment processes and documents, it might make the transfer untenable,” he said.
“All of these items, including the SMSF’s trust deed and considerations around any direct estate planning consequences need to be considered, but if the transfer proceeds then there are a few tidy up items to attend to.”
Once the change of title has occurred, several parties need to be informed, including the State Revenue Office, the local council and the insurance company. Any lease should be checked to ensure it does not require amendment or assignment.
“It’s important to note that this also applies if the tenant is a related party,” Busoli said.
“If a bare trustee company was established solely to hold the legal title to the property, it might be useful for other purposes as these are generally standard companies that can act as trustees for other trusts or trade in their own right. Premature liquidation or deregistration must be avoided.”
