Buying Property in a SMSF

Our Perth-based team of tax accountants can assist you with the setup of an SMSF including Bare Trust for the purposes of a Limited Recourse Borrowing Arrangement associated with real estate.

Thereafter, we can assist with ongoing annual compliance obligations such as annual tax return.

Please note, our involvement is strictly limited to accounting solutions. We do not provide financial/investment advice.

Bare Trust and Limited Recourse Borrowing Arrangement (LRBA)

The Superannuation Laws require the Trustee of a SMSF to use a Bare Trust to hold the legal title of any single acquirable asset when under a limited recourse borrowing arrangement (LRBA). E.g. Real estate that has been purchased with finance. Ordinarily, the Trustee of the Bare Trust must be a company to satisfy bank requirements.

Buying an investment property within a SMSF using an LRBA involves setting up a company and preparing LRBA documentation, which typically includes establishment of a Bare Trust Deed, SMSF Trustee Minutes, Loan Agreement, Security Agreement and other legal documents.

Typically, before shopping for a property you will be required to work with your financial advisor and potential lenders so you can be granted finance pre-approval.

If you need a SMSF loan, before establishing a Bare Trust you will need the property’s details. While it may seem like a step out of sequence, it’s important to note that supplying us with the property details is a preliminary requirement for establishing the Bare Trust.

Once you have found a property and established a Bare Trust it’s then possible to formally proceed with applying for the loan. This process may take longer than a normal home loan because of the documentation required. In a hot property market where 21 or 30-day settlements are common, this means quick action is probably necessary if you want to secure the property you’re interested in.

Price – Bare Trust & LRBA

Set out below is the pricing for the establishment of a Bare Trust and LRBA:

• $3,300 incl. GST.

This includes legal and regulatory (ASIC) fees. (The setup of a SMSF is separate.)

Please note that this price only applies if you are obtaining finance from a bank or a financier that is a 3rd party dealing with the SMSF on an arm’s length basis. If you are planning to obtain finance from a related entity (i.e. non-arm’s length loan), then the price to prepare the LRBA documentation will need to be revised (estimated total cost will increase to $6,600 including GST). This is because further documentation will need to be tailored because a non-arm’s length loan exists.