All Topics / Legal & Accounting / Transfer assets from trust to SMSF

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  • Profile photo of Brett73Brett73
    Participant
    @brett73
    Join Date: 2011
    Post Count: 8

    I am looking into setting up a trust within the next few months and wondering which type to choose.
    One of my main considerations would be the ability to transfer assets (or just income) into a SMSF down the track, or if this is at all possible. I am 38 years old and would like to accumulate any further property within a trust until I am 50, but then I would like to progressively move this to a SMSF, obviously to take advantage of zero tax on income within super once I turn 60.
    Some ideas I have include:-
    – buying property using a unit trust now and then selling units to a SMSF down the track.
    – buying property using a family trust now and then gifting progressively to a SMSF down the track.
    I would appreciate it anyone has any experience or other ideas on any of the above.

    Regards
    Brett L.

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    I don't know much about super, but am slowly learning more.

    a SMSF is generally prohibited from acquiring assets from a related party. A trust or a company would be a related party. There is an exemption at s66 SIS Act for the transfer of business real property – but this would only apply to non residential property.

    I have heard a strategy of buying in a unit trust and then transferring the units over to your SMSF on retirement, but think now that his will be caught by the restrictions.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of Anthony KAnthony K
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    @anthony-k
    Join Date: 2010
    Post Count: 56

    Hi Terry, Brett and All
    This is possible but first correct your terminology.
    There must be no "transfers" or "selling".
    The correct terms are "issue" and "redemption" of units.
    S 66 prohibits the "intentional acquisition" of assets by a SMSF Trustee from a member or related party.
    Business Real property and some other itemised assets are excluded.
    So heres the strategy based on my 33 years experience as a specialist SMSF practitioner advising on property and business acquisition planning.
    1. You need the right unit trust deed with the necessary definitions and permissions,
    2. The SMSF can apply for new units to be issued,
    3. After they issued and unit price has been paid, certificates issued and transactions recorded, then
    4. Units owned by related parties can be redeemed for cash in the trust,
    Warning ! if some time has elapsed since the assets in the trust were acquired you will need to consider changes in value to establish unit prices on an arms length basis (S109 SISA) and CGT consequences. A market valuation may be necessary.
    Why does this NOT breach S66 ?
    Because the asset to be acqured (new units)  is and has not ever been an asset owned by a related party. Why is the unit being issued by the trust (which is a related party) not an asset – because it is a liability of the unit trust and only has value to the owner – the SMSF which is obtaing a newly created asset.
    Why is the issue and redemption not a "transfer" = because all the units exist at the same time and are owned by different parties. Thererfore they cannot have had ownership of the same assets,
    We have developed many very useful and powerful strategies over the years that enable many "impossible" outcomes.
    Regards
    Anthony at A4Companies
     

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    Thanks Anthony. Very interesting. Do you think the ss3 about entering into a scheme could apply?

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of Anthony KAnthony K
    Participant
    @anthony-k
    Join Date: 2010
    Post Count: 56

    Hi Terry & All

    You mean S66 (3) ?

    Well I see this as a permitted act, as it does not result in a breach for the reasons stated before. If the ATO want to augue that a breach has been committed because of S65(3) then you have  an "arguable case" in response and an AAT defence. This is one of the problems where the Regulator also collects the taxes and applies penalties. SMSF's need an independant regulator without an axe to grind as we had when the iSC was the regulator. Just always remember the ATO does not make the law although it tries to pretend it does.

    Regards

    Anthony

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi Anthony,

    Yep, was referring to s 66(3).

    I was just wondering because I have a friend who leases a land and has constructed a commercial builidng on it. A fin planner had suggested he sell building to his SMSF (but not the land). I pointed out that this would breach s66 and the business real property exemption wouldn't apply (lease cannot be transferred).

    However if he were to transfer the building to a unit trust and then later redeem and issue units then i think s66(3) would prevent this.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of Anthony KAnthony K
    Participant
    @anthony-k
    Join Date: 2010
    Post Count: 56

    Terry
    Try reading SMSF Ruling  SMSFR 2009/1 its all about BRP, you may be surprised at what it includes.
    However I cant see the point in putting a lease expense in a SMSF and it will probly breach S65 anyhow.
    Another issue is that the above ruling states that property laws state that any appurtenances which are attached become part of the land title. So your friend has only a right to occupy under the lease terms and has no other rights. When the lease is up the building will stay with the property title holder.
    Cant see any virtue in messing with it Terry.
    Tell me if you can.
    Regards
    Anthony

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Anthony, Yes read that ruling and it makes it clear that it woudn't be possible.

    I am surprised that this Fin planner put it in writing in his statement of advice even though it is clearly prohibited. he didn't know about that ruling it seems.

    He has also suggested that my friend use the recontribution strategy to bring down the taxable component of his super. This is a good strategy as he has no tax dependants so his adult children will pay tax on any taxable component of his super that they receive as death benefits.

    But the fin planner is suggesting he contribute $450,000 in one year by bring forward 3 years of $150,000. However my mate is over 65 so I beleive the bring forward part is not available and he will be limited to $150,000 pa while still working and under 75. Excess constributions  can have serious consequences. excess can be taxed at 46.5%! $300,000 x 46.5% = a lot.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of MikeFMikeF
    Participant
    @mikef
    Join Date: 2008
    Post Count: 60
    Terryw wrote:
    But the fin planner is suggesting he contribute $450,000 in one year by bring forward 3 years of $150,000. However my mate is over 65 so I beleive the bring forward part is not available and he will be limited to $150,000 pa while still working and under 75. Excess constributions  can have serious consequences. excess can be taxed at 46.5%! $300,000 x 46.5% = a lot.

    Hi Terry

    I'm with you…the act clearly states that once your aged 65 or over (on 1st July) you cannot use the bring forward provisions, you can only contribute a maximum of $150,000 of non concessional contributions per year, and only if you satisfy the work test.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Yes,  the Fin planner has admitted he got it wrong again! 2 things wrong with the one client. That could have been very costly!

    Thanks Mike,

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

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