My client has an SMSF which owns property via an LRBA. The debt has now been paid back. Is it compulsory to transfer title to the property from the LRBA bare trust to the fund?

30 Aug 2019

Lyn Formica

Head of SMSF Technical & Education Services

No, but it may still be appropriate to do so depending on the fund’s future intentions.

Once the borrowing under a Limited Recourse Borrowing Arrangement (LRBA) is paid back, the SMSF trustee has two options:

  1. it can retain the property in the bare trust, or
  2. it can transfer title to the property from the bare trust to the SMSF trustee.

What would be the advantage of transferring title from the bare trust to the SMSF?

Whilst the property remains held in the bare trust, it remains subject to the usual LRBA restrictions. This means there must not be any fundamental changes to the character of the property, even after the debt has been paid out. For example, if the property was on a single title and, now that the debt has been paid out, the SMSF trustee wishes to use existing fund cash to sub-divide the property into two titles, title to the property would first need to be transferred from the bare trust to the SMSF.

Transferring title from the bare trust to the SMSF would also allow for the deregistration of the corporate trustee of the bare trust, if desired (eg if fund did not intend to undertake any new LRBAs).

Note, even if title is transferred from the bare trust to the SMSF, the bare trust cannot be “reused”.  

If the fund wishes to purchase a new property via an LRBA, a new bare trust arrangement will need to be established (although the company which was trustee of the original bare trust could be the trustee of the new bare trust).

What is involved in transferring title from the bare trust to the SMSF?

Where the asset held by the bare trust is real property, you would generally need to arrange for a solicitor to:

  • prepare resolutions between the trustee of the bare trust and the trustee of the SMSF,
  • prepare transfer documents, which will depend on the requirements of the relevant land titles office of the state or territory in which the property is situated,
  • arrange for the transfer documents to be stamped (depending on the state or territory in which the property is situated, other documents may be needed to obtain the relevant stamp duty exemption/concession), and
  • register the transfer with the relevant land titles office.

Note, to obtain a stamp duty exemption or concession in the relevant state/territory, you will need to be able to demonstrate that the bare trust arrangement was properly established and duly stamped at the outset, and that the SMSF provided all the purchase money. 

Where the SMSF trustee intends to dispose of its interest in the property in the near future, it may be simpler and cheaper to leave the bare trust arrangement in place until disposal.