Title Changes after extinguishing an SMSF Borrowing

29 May 2024

Written by

David Busoli, Principal

A key consideration, after the repayment of a limited recourse borrowing, is the transfer of the property title to the SMSF trustees. Does it need to be done? The short answer is No, though it might be advisable.

If no transfer occurs, the management of the property remains unchanged. The restrictions on improvements or changes of use remain but, if these are not intended, they aren’t relevant. Should a redevelopment of the site be planned in future, the property title will need to be transferred beforehand.

Transferring the title now will remove ongoing costs associated with the running of the bare trust but these will generally be minimal except for the costs, including ASIC fees, associated with the bare trust’s corporate trustee. Transferring the legal title to the SMSF trustee can streamline the SMSF’s legal framework but it comes at a cost. The transfer should not incur stamp duty, but it will attract legal fees for the conveyance. If stamp duty applies, possibly due to faulty establishment processes and documents, then it might make the transfer untenable.

All of these items, including the SMSF’s trust deed and considerations around any direct estate planning consequences need to be considered but, if the transfer proceeds, then there are a few tidy up items to attend to.

There are parties that need to be informed of the change of title which may include the state revenue office, local council and insurance company. Any lease should be checked to ensure it does not require amendment or assignment. Note that this also applies if the tenant is a related party.

If a bare trustee company was established solely to hold the legal title to the property, it might be useful for other purposes as these are generally standard companies that can act as trustees for other trusts or trade in their own right. Premature liquidation or deregistration must be avoided.

Essentially, the repayment of a limited recourse borrowing presents an opportunity to consider changes to the property’s title. It does not trigger a mandatory change.

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