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Ensure your SMSF investments are in the right name

Mar 8, 2019, 13:00 PM

By Graeme Colley

Graeme Colley SuperConcepts SMSF expert

The reason to have an SMSF is to build wealth for your retirement. So, it’s important to make sure the fund’s investments are purchased in the right name. If something goes wrong, others could get their hands on an asset they’re not entitled to.

Ownership of an SMSF investment is required to be in the name of the fund’s trustee. This is the case for both types of trustee structure – individual trustee and corporate trustee (in which the company directors are the fund members).

For individual trustees, each trustee’s name must be recorded on the investment. If there’s a change in membership, say one trustee is replaced with another, then the ownership of the investment will need to be updated. This may incur stamp duty and possibly other charges with the registry.

A corporate trustee, in contrast, is simpler for investment ownership. Fund investments are held in the name of the company trustee. Any changes to the company directors (resignations & replacements) do not impact investment ownership. 

There is a protocol in recording investment ownership, illustrated by the following example. ATF is short for ‘as trustee for’.

Individual trustee example:
John Smith and Jane Smith ATF Smith Family Super Fund

Corporate trustee example:
Smith Co Pty Ltd ATF Smith Family Super Fund

If the fund asset is shares in a publicly listed company, it would be common for the share registry to record ownership as:

Individual trustee example:
John Smith and Jane Smith <Smith Family Super Fund>

Corporate trustee example:
Smith Co Pty Ltd <Smith Family Super Fund>

Sometimes the register of the fund’s investment will have enough space to record the names of each individual or the company trustee. But in some cases, the registry may limit the number of characters and may record the names of only one or two of the trustees. Sometimes the name of one trustee may be recorded but there will be an indication that the investment is owned jointly or as trustee. Make sure the fund records recognise that the investment is registered in the names of all individual trustees in case you are ever questioned by the fund’s auditor or a regulator.

Some assets such as real estate are also subject to state-based laws. These laws can be restrictive in how the fund can show its ownership of the asset. As a result, you may need to prepare additional paperwork, such as a caveat or declaration of trust to support the fund’s ownership of fund assets. Legal advice should be obtained concerning the appropriate documents.

When it comes to real estate, the land titles registry will permit only the names of the individual trustees or corporate trustee to be recorded and not permit the name of the super fund to be included. In this situation the name of the super fund can be included on the contract of sale or other documents for the purchase or sale of the property. 

It would be common for the land titles office to record ownership as:

Individual trustee example:
John Smith and Jane Smith

Corporate trustee example: 
Smith Co Pty Ltd

The land titles office will only record the legal owner of the real estate rather than the superannuation fund which is the beneficial owner of the real estate. However, the contract of sale would usually refer to the fund – e.g. John Smith and Jane Smith ATF Smith Family Super Fund or, in the case of a company trustee, Smith Co Pty Ltd ATF Smith Family Super Fund. In some states the contract for sale may allow nominee arrangements which allow the trustees of the fund to be nominated prior to the settlement of the property. 

In some cases, the fund may purchase or sell investments such as shares in private companies, units in private unit trusts and even artworks and collectables. Where there is no registry for a particular investment it should be ensured that the documents relating to the purchase of the asset or the loan clearly indicate the names of the trustees ‘as trustee for the [name of superannuation fund]’. If the fund has entered into a limited recourse borrowing arrangement the investment should be held in the name of the holding trust or custodian and not in the name of the trustees ‘as trustee for the superannuation fund’. 

The advantage of having fund investments in the correct names is that it clearly indicates the owner of the investments especially if it is required to be registered with an independent third party. First, the SIS Act requires the fund investments to be kept separate from personal assets of the fund. This means that you need to manage your SMSF assets independently of your own personal or business affairs. Second, where there is an individual trustee who is having business troubles and goes bankrupt, the investments should be clearly identified in the name of the trustee. Third, clear separation of fund investments from those owned personally will help to reduce disputes for family law purposes and when benefits become payable from the fund. 

For compliance purposes under the SIS Act, each year investments are required to be valued on a market basis. There are ATO guidelines on how to value investments and other assets at market value for tax and SIS purposes which helps ensure the investment is valued correctly.

Information about a particular investment is important especially when it is unique. Those investments registered on the various exchanges or with regulators such as the land titles office are easier to identify compared to those investments which may be boutique and unconventional.

At a glance – what you need to do

  • Make sure the investments of the SMSF are in the names of the trustee and recognise they are held in trust for the SMSF;
  • Where there is a register of a particular investment, such as listed shares or real estate, make sure the trustee’s name is recorded on the relevant documents including contracts of sale;
  • Where there is no register for a particular investment, such as private company shares, units in a private unit trust or loans, make sure the name of the trustee is recorded as holding the shares or units in trust for the SMSF, or the loan documents are in the trustee(s) name as trustee of the relevant superannuation fund;
  • Check to see that the income and expenses which relate to non-arm’s length transactions comply with the legislation or seek advice to find out whether they comply.