Purchasing property with your SMSF
When the legislation governing SMSF borrowing was changed by the Federal Government, the ability for people to use their SMSF to purchase property became a real prospect whereas before this, they needed the cash reserve.
Now they could borrow funds. This has resulted in a dramatic increase in the number of contracts received whereby the buyer is the SMSF.
Along with the increase in the number of Contracts has been the rise of issues that can lead to the Contract falling over, being rescinded or not proceeding and essentially increasing the legal fees payable by the SMSF to correct the situation.
Some of the more common errors are as follows:
- The Buyer’s details on the Contract are incorrect. Whether the SMSF is buying the property in its own name with cash or borrowing money through a Limited Recourse Borrowing arrangement, if the trustee name is not correct on the Contract, it will need to be rescinded. In Qld, it is not acceptable practice to simply “cross-out” a buyer’s name on a Contract and insert the preferred alternative. Such measures can lead to the entire transaction attracting double the stamp duty;
- The SMSF Deed is not current to comply with the borrowing laws; or
- The SMSF Deed does not provide authority for the proposed transaction.
As there are various SMSF Deed versions in existence, you cannot simply assume that your Deed contains the necessary provisions to cover off on a property purchase. Keep in mind that any legislative changes that occur after your Deed was created will not automatically be included in your Deed without a necessary Deed of Variation being entered into.
In order to avoid you encountering the above and invariably incurring unnecessary costs in rectifying a Contract that has already been entered into, you must seek legal advice before you enter into the Contract.
Call Fedorov Lawyers on 1300 768 719 for the right advice.