Peter Johnston, director of The Advisers’ Digest, said there is nothing in the law that dictates that SMSFs must buy property in Australia, but it is important to understand “if you are the adviser to the fund, or if you are the fund, you need to be audited”.
“And if you think you can get away with an audit at the standard price, then forget it, because if an auditor says, ‘Yeah, I can sign off on this with no problems whatsoever’, then the auditor is probably not doing what they need to do,” Johnston said.
“Then if the client ever moves to another accountant and they get a new auditor, chances are the new auditor will qualify, which will then cause the Tax Office to go back to the old auditor and say that they want to audit this file. Auditors now have to do exactly what is required of them, because clients leave and it’s the new auditor that, in effect, dobs in the old auditor simply by qualifying the existing audit.”
Johnston said under the law a regulated super fund trustee can borrow or maintain a borrowing to acquire a single acquirable asset, and regarding overseas property it is first necessary to determine that it is a single acquirable asset.
“The auditor needs to confirm it’s a single acquirable asset. They will have to get on Google Maps, look at contracts to make sure that it is a single acquirable asset,” he said.
“They will also have to make sure it wasn’t acquired off a related party. They can probably accept a statutory declaration from the trustee to confirm this.”
He continued another rule is that the RSF trustee can borrow or maintain a borrowing to acquire a single acquirable asset provided that the asset is held on trust and that the RSF trustee holds a beneficial interest in the asset.
“Now the auditor has to make sure that the asset is held on trust. If the asset is in, for example, the USA, it is usually held through an LLC (limited liability company), which is a company from the corporation’s law point of view, but a partnership from a tax point of view, and taxed in the USA in its own right.”
“However, you could do a declaration of trust to say that the LLC holds the property absolutely for the benefit of the SMSF in Australia. Where would you execute that contract? Probably in Australia, although the trust needs to be under the law of wherever you executed it, and maybe you can hold a property on trust in that jurisdiction. If you can, then perhaps it is the Australian entity that is taxable. If you can’t, then likely the LLC will be taxable and you would get a credit for those taxes, notwithstanding that under Australian trust law, you are holding it in trust and having a beneficial interest.”
He continued that the auditor would need legal confirmation that the SMSF trustee does have a beneficial interest in the underlying asset.
