Townsends Business & Corporate Lawyers solicitor Natasha Ng solicitor explained that recent changes to the NSW Duties Act allow contracts to now be signed in the name of the fund trustee as the purchaser and the holding trustee as transferee on the transfer without double stamp duty being imposed.
For SMSFs entering into a limited recourse borrowing arrangement (LRBA) for a property in NSW, Ms Ng said the holding trustee or custodian company needed to be incorporated with ASIC prior to the contract of sale being entered into.
“For these transactions, the holding trustee is the purchaser on the contract and is also transferee on the transfer form. This meant that full stamp duty is payable on the contract with $10 duty being paid on the transfer,” Mr Ng explained.
Generally, full stamp duty is payable on a contract of sale unless a stamp duty concession applies, she said, and if the purchaser on the contract matches the transferee named on the transfer, then $10 duty is payable on the transfer.
“[Previously], if the purchaser and transferee were not the same entity, then potentially double stamp duty would be payable - full stamp duty on the contract and full stamp duty on the transfer form,” she said.
The recent change in legislation, she said, provides more flexibility for SMSFs looking to purchase property in NSW using a limited recourse borrowing arrangement.
“If an SMSF does not have time to set up a corporate holding trustee prior to an auction, an SMSF can sign a contract of sale in the name of the fund trustee as purchaser, then later set up the holding trustee company prior to signing the transfer form and settlement of the purchase,” she said.
“The change also provides flexibility in off-the-plan purchases where the fund trustee can sign the contract as the purchaser. In a few years, when the property is built and strata plan has been registered, the SMSF may reassess its cash flow position and may have enough cash to buy the property outright at settlement with no borrowing required.”
In the event that the SMSF needs to borrow to provide the balance of the purchase price at settlement, she explained that a holding trustee could be set up to sign the transfer form which would only attract nominal stamp duty of $10 provided full stamp duty was paid on the contract.
“Having the purchaser named as a fund trustee and transferee as the holding trustee does not affect the SMSF's eligibility for $500 concessional stamp duty payable (under s62B of the Duties Act 1997 NSW) on the Holding Trust Deed (bare trust deed) provided all the other relevant requirements of the section are met,” she said.
“If an SMSF wants to take advantage of the above stamp duty changes it is important that the limited recourse borrowing documents or bare trust documents reflect the above arrangement.”