If you are about to pay off your limited recourse borrowing loan (or have recently done so), you are probably wondering what to do next. You might want to simplify your super fund investments and wind up the custodian trust. Or you might be planning your next property purchase.
In this article, we answer the big four questions that you are likely to be asking yourself.
Question 1: Do I have to transfer the property?
Once the loan is repaid in full, you have the option to either:
- Keep the property in the custodian trust, held in the name of the custodian trustee; or
- Transfer the property into your super fund, where it will be held in the name of your super fund trustee.
Prior to 2014, the general view was that if the property remained in the custodian trust after the loan had been repaid it would breach the in-house asset rule. However, an ATO Determination clarified that the in-house asset exemption would continue to apply if the property remained in the custodian trust.
Question 2: Should I transfer the property?
There are several benefits to transferring the property to your super fund once you have paid off your loan.
Transferring the property simplifies your asset-holding structure, as you can wind up your custodian trust (and deregister its company trustee) once the property has been transferred.
This simplification also results in a reduction of ongoing administrative costs, such as accounting work for the custodian trust and ASIC annual registration fees for its company trustee.
Also, property the subject of a limited recourse borrowing arrangement cannot be changed or improved. As such, it is a commonly held view that a property must be transferred from a custodian trust to a super fund before it can be changed or improved (e.g. subdivided, renovated, demolished and rebuilt, etc).
Further, transferring the property ensures that your super fund affairs are more in order from an estate planning perspective. It reduces the need to make changes in the event of your death, because the property is already in the right place and you are carrying out fewer roles (as there are fewer entities in your structure). This means that dealing with your superannuation affairs if you pass away would be less complex and less expensive.
Lastly, transferring the property can be a good option if you want to set up a limited recourse borrowing arrangement for a new property because it frees up your custodian trustee. While you are permitted to use the one trustee company for multiple custodian trusts, many lenders prefer the arrangement to be ‘clean’ (i.e. have one trust per company trustee). Re-using the custodian trustee once the existing custodian trust has been wound up keeps things simple for (and therefore more attractive to) a potential lender.
Question 3: Is there a stamp duty exemption on the transfer?
Depending on the state in which the property is situated, there is either no duty or a nominal amount of duty chargeable on the transfer from the custodian trust to the super fund.
Duty charged1 in each state and territory in Australia is as follows:
South Australia – Section 71(7a) of the Stamp Duties Act 1923 – Nil
New South Wales – Section 62(1)(b) of the Duties Act 1997 – $500
Victoria – Section 41(1) of the Duties Act 2000 – Nil
Queensland – Section 130B(1) of the Duties Act 2001 – Nil
Western Australia – Section 126(2)(b) of the Duties Act 2008 – $20
Northern Territory – Item 6(b) of Schedule 2 to the Stamp Duty Act – Nil
Australian Capital Territory – Section 63(1)(b) of the Duties Act 1999 – Nil
Tasmania – Section 46 of the Duties Act 2001 – $50
To obtain the exemption or concession, you must be able to demonstrate that the custodian trust arrangement was properly established and duly stamped at the outset. You also need to be able to show that the super fund provided all the purchase money and was the beneficial purchaser of the property.
Question 4: What is involved with the transfer?
First, you need the custodian trustee and the super fund trustee to decide to transfer the property. This usually involves the trustees passing resolutions to record their decisions. The custodian trustee usually also makes a formal request to the super fund trustee to carry out the transfer.
Second, you need to prepare the required transfer documents. These documents will vary depending on the requirements of the lands titles office in the state or territory in which the property is situated.
Third, you need to prepare documents to satisfy the stamp duty exemption or concession requirements. These documents also vary depending on the requirements of the local revenue office. Many states require statutory declarations of the trustees (or trustee directors) to be provided. Evidence of the provision of the purchase money by the super fund and the repayment of the loan is also usually required.
Once the transfer documents have been stamped, the final step is to register the transfer with the relevant lands titles office. The property will then be held in the name of the super fund trustee.
We also note that no capital gains tax or other income tax liabilities are triggered for the custodian trustee or super fund.
We can help
We have experience in preparing the documents needed to process the transfer of property from custodian trusts to super funds. We can assist regardless of where your property is situated. We look after the process from go to whoa, so you don’t have to track down multiple people to do each different aspect of the transfer.
1 Quoted duty amounts are correct as at 1 November 2017.