SMSF Property Purchase Process With Borrowing
Here are the steps to buy property with your Superannuation via SMSF with loan (LRBA) including bare trust.
Check borrowing capacity
Setup SMSF / Transfer your fund to SMSF bank account
Setup bare trustee company
Find suitable property and sign purchase contract
Sign bare trust documents
Finance approval and deposit payment
Settlement
Post settlement.
1. Check borrowing capacity
Before spending time and money setting up an SMSF, speak to a mortgage broker specializing in SMSF loans to understand the following:
How much could your SMSF borrow;
What interest rate will your SMSF be paying;
What the monthly repayments will be;
Value of property your SMSF could afford to purchase;
Lender requirements.
Most mortgage brokers don't specialize in SMSF loans. Contact Delight Mortgage, SMSF specialist broker who can assist you.
2. Setup SMSF
When you've decided to set up an SMSF to buy property, you may begin the setup process with Sydney Tax.
The SMSF setup process is as follows:
Submit all the documents and information to Sydney Tax;
Electronically sign your deed and documents;
Sydney Tax registers your SMSF with the ATO;
Sydney Tax assists with your SMSF bank account setup;
Transfer your existing super to the SMSF account;
Invest as per your investment strategy (including buying property);
Note that some of the above steps may occur simultaneously with other aspects of the SMSF property-purchase process.
For example, you can research potential properties and even enter into contracts while waiting for your super monies to be transferred to your SMSF.
SMSF Setup Fees
The cost of setting up an SMSF to buy property is $1650.
You pay the SMSF setup fees personally (e.g. via credit card).
The fees can be reimbursed once your SMSF is up and running.
When setting up an SMSF to buy property, you must have a company trustee and NOT use individual trustees. This is because most SMSF lenders only provide a loan where the trustee is a company.
How long does it take to set up an SMSF?
Expect at least four weeks to set up an SMSF from start to finish. A typical timeline is as follows:
ATO approval - 1 to 2 weeks;
Bank account setup - 1 week;
Transfer super - 1 week.
3. Setup bare trustee company
When your SMSF is up and running, and you are ready to buy property, the bare trustee company (aka holding company) must be set up.
When you start looking for property request us to setup trustee company.
This is a second company and is different to the SMSF trustee company. This company will be the legal owner of the property and hold the title on behalf of the SMSF, which is the beneficial owner.
How to set up a bare trust and trustee company?
To trigger the setup of the bare trustee company, simply email us.
What is the fee for a bare trust and trustee company?
The fee for setting up the bare trustee company (and bare trust) is $1,650, which includes the ASIC fee. The SMSF pays for this.
When to set up a bare trust and trustee company?
The bare trustee company can be set up anytime after the SMSF setup process is commenced. Typically, the setup takes between 0 to 2 business days.
Can an existing company be used as the trustee for the bare trust? Possibly. Contact Sydney Tax for specific advice.
How long does it take to set up a bare trustee company?
Sydney Tax can set up the bare trustee company on the same business day or the next day after receiving payment. If you require the bare trustee company urgently to enable you to enter a contract, we recommend getting in touch via phone.
We will prioritize your order if possible.
Naming conventions for the bare trust
When preparing documents, consider using clear naming conventions such as 'Your Name Bare Trust' or 'Your Name Holdings Pty Ltd'.
Pro-forma Bare Trust
It's possible to request a 'pro-forma' Bare Trust for finance pre-approval purposes if required, which can simplify the loan approval process.
Steps After Ordering a Bare Trust Deed
Make the required payment to trigger the drafting of your Bare Trust deed.
Sign the purchase contract
QLD, WA and NT property purchases require the bare trust to be established BEFORE (or the same day as) the purchase contract is signed.
Once the bare trustee company is set up, you can sign the purchase contract for a property (except for properties in QLD and the NT).
The name on the contract for an SMSF purchasing property with a loan (LRBA) varies depending on the state or territory the property is located:
State Name on Contract
NSW* Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
VIC* Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
QLD** Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
SA* Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
TAS* Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust
WA** Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for the Name of Holding Trust for SMSF Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Fund
ACT Holding Trustee Pty Ltd ACN XXX XXX XXX
NT** Holding Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Holding Trust as bare trustee for SMSF Trustee Pty Ltd ACN XXX XXX XXX as trustee for Name of Fund ABN XX XXX XXX XXX
*Alternatively, the buyer's name can simply be "Holding Trustee Pty Ltd ACN XXX XXX XXX" (as this is what will be registered on the title) without any reference to the bare trust/holding trust, however, please confirm with your solicitor for their preference.
**QLD, WA and NT purchases should sign their bare trust documents BEFORE or the same day as entering into a contract.
Notes:
"as trustee for" can be shortened to "ATF";
Always check the name for the contract with the solicitor handling the purchase on your behalf and take their advice;
VIC, SA contracts may allow using "or nominee" on a purchase contract, but please seek legal advice first.
Once the contract is signed, provide a copy to Sydney Tax, as we will need the property details to prepare the bare trust documents.
Pay the deposit required from the SMSF bank account, or pay it out of your personal funds, provided the SMSF repays you as soon as possible.
The initial and final deposits must be paid from SMSF monies to help demonstrate the SMSF is the beneficial owner.
Purchase Contract Details
SMSF lending and finance approval is more complex and typically takes longer than a regular investment property purchase.
For this reason, the following extended timeframes are suggested when purchasing via an SMSF using borrowings:
28 days for finance approval;
42 days for settlement;
If you've obtained (conditional) pre-approval for your SMSF loan, you can use include 21 days for finance and 30 days for settlement.
5. Sign bare trust documents
QLD, WA and NT property purchases require the bare trust documents to be signed BEFORE (or same day) the purchase contract is signed.
When you sign a contract in the name of the bare trustee company, you've created a trust.
A trust is a relationship where a trustee holds an asset on behalf of a beneficiary. For example, the bare trustee company holds the property title on behalf of the SMSF as the beneficiary.
The bare trust deed (also known as holding trust deed or custodian deed) confirms the relationship between the bare trustee company as the legal owner of the property and the SMSF as the beneficial owner.
Obtaining bare trust documents
After your offer on a property has been accepted, share property details for accurate preparation of:
Purchaser name for the contract (depending on state requirements)
Bare Trust documents
Guidance on the timing of document execution.
To obtain your bare trust documents, email the signed contract to Sydney Tax. We will prepare the bare trust deed and minutes and send them to you for signing via DocuSign.
To finalize the Bare Trust deed:
Ensure you provide a fully signed and executed purchase contract. This is necessary for issuing the actual Bare Trust deed.
Sometimes, it may be required to sign a hard copy via wet-ink signatures, where the lender doesn't accept electronically signed documents (rare).
Remember, for QLD and NT property purchases, you must provide details of the proposed property before the purchase contract is signed.
When to sign and date bare trust deeds
Execution and Certification Guidelines
Execute the Bare Trust deed by signing it as required.
Properly date the top of the third page to comply with execution standards.
Return the fully executed and dated deed for final submission.
State Execution Time
NSW After contract date
VIC After contract date
QLD* Before (or on) contract date
SA After contract date
TAS After contract date
WA Before (or on) contract date
ACT After contract date
NT* Before (or on) contract date
*Bare trust documents can be signed and dated the same day as the contract date.
Although some jurisdictions allow a bare trust deed to be executed after settlement, because signed documents must be provided to SMSF lenders for finance approval, you will need to sign the bare trust documents shortly after signing the purchase contract.
Find a Suitable Conveyancer/Solicitor
If you are borrowing for SMSF purchase, the lender(Bank) will require you to get "Independent Legal Advice" from solicitor. Where possible appoint a solicitor who can do the conveyancing as well.
Pay deposit
The SMSF must pay the deposit for the property.
You should NOT PAY THE DEPOSIT USING PERSONAL MONIES.
For more information about this requirement, please refer to this help center article:
Can you personally pay a property deposit where SMSF lacks funds?
6. Finance approval
Once you've signed the purchase contract and bare trust documents, you must liaise with your mortgage broker or SMSF loan provider and complete all necessary steps for finance approval.
Most lenders require a letter from the SMSF accountant confirming ongoing fees and contribution levels. If required, please contact Sydney Tax and provide details of what is required.
You also need to get insurance for the property before settlement. Make sure the insurance is in the name of "Holding Bare Pty Ltd ATF Holding Bare Trust".
Note that Sydney Tax never provides personal finance advice; therefore, we cannot assist you if you choose an SMSF lender that requires a Statement of Advice (SoA) or sign-off from a financial adviser.
The mortgage brokers Sydney Tax works with understand that many people who use their super to buy property via an SMSF do not seek, or require, financial advice.
After the finance is approved, you must make the final deposit for the property purchase. Make this payment from the SMSF cash account.
TIP: Ensure you keep a copy of the SMSF loan agreement. You should be provided with a guarantor copy. Your SMSF auditor will require this document.
Purchase expense payments
Buying a property requires payment of many fees and expenses. Any of the following should be paid from your SMSF bank account and narrated in the transaction description:
Solicitors fees;
Lender finance application fees;
Building and pest inspection costs;
Property insurance premiums;
Buyer's agent fees;
If your SMSF doesn't have cash available to pay any of the above fees, it's possible to pay them personally and later reimburse them from the SMSF cash account.
Any expense you pay that is NOT reimbursed will be considered a personal contribution to the SMSF.
7. Settlement
If you've followed all the prior steps correctly, your SMSF property purchase settlement should occur without complications.
Ensure you transfer the required amount from your SMSF cash account to your solicitor's trust account before the scheduled settlement date.
Contact your solicitor via phone to confirm their trust account details before making payment because scammers and hackers are known to target property buyers with fake trust account details. Your bank typically won't be able to recover your money if you initiate a payment to a scammer account, so please be very cautious.
Assuming your SMSF uses a Macquarie Cash Management Account (CMA), you have a $100,000 daily payment limit when setting up the Macquarie Authenticator App.
Where you need to make a payment over $100,000, contact Sydney Tax, and we can trigger an Adviser Initiated Payment of up to $500,000,
If you use a different bank, contact them for instructions on making larger one-off payments to your solicitor's trust account.
8. Post settlement housekeeping
After your SMSF property settles, it's a great time to gather all documents relating to the property purchase into one place or folder.
Refer to the article for a list of documents we will need for your SMSF accounts and audit:
Depreciation schedule
Depreciation is one of the biggest tax deductions available to SMSF property investors and can boost your cash return by thousands.
We recommend you obtain your SMSF property depreciation schedule from DuoTax:
SMSF investment strategy
Update your SMSF investment strategy document to reflect the purchase of property:
Take required insurance
You can take life and TPD insurances from your SMSF.
Automatic payments
There is a misconception that running an SMSF is complex and time-consuming. It doesn't have to be.
Most councils, insurers and body corporates enable you to set up automatic direct debits for payments of rates, fees and levies. It's recommended you set up these automatic payments and also elect to receive these notices and statements electronically.
Questions and feedback
If you have questions not covered in this support article or have any feedback, please get in touch with Sydney Tax, and we can update as required.
