While it might appear straightforward, attention to detail is the key to owning SMSF assets. And with r4.09A SISR now one of the most reported breaches to the ATO, understanding how clear title works is fundamental for SMSF compliance.
Requirements of r4.09A SISR
Regulation 4.09A SISR ensures that the fund’s assets are kept separately from the members’ personal or business assets.
ATO ID 2014/7 clarifies that the principles of r4.09A SISR apply to all types of assets, including shares, units in a trust and other property.
Part of that requirement is to protect fund assets by establishing clear ownership in the event of a dispute to avoid costly litigation.
SMSF assets cannot be held in the personal name of the member or trustee, regardless of whether the trustee is an individual or a director of a corporate trustee.
Alternatively, the audit report may be qualified and an auditor contravention report (“ACR”) lodged with the ATO.
Correct Title to Assets
As an SMSF is a unit trust, it cannot hold fund assets directly. The purpose of the trustee is to hold the assets legally on behalf of the beneficiaries, who are the beneficial owners.
The naming convention for SMSF assets is as follows:
ABC Pty Ltd ATF ABC Superannuation Fund
John White & Jane White ATF ABC Superannuation Fund
From an administrative point of view, it is much easier to have a corporate trustee which is another key to owning SMSF assets. The reason is that the appointment or resignation of a director of the corporate trustee does not require any changes made to the title.
Sole Purpose Corporate Trustee
An asset held in the name of the corporate trustee only and not held on trust for the fund may comply with r4.09A.
Typically, fund assets are expected to be held in the name of the corporate trustee as trustee for the fund.
A corporate trustee can be a sole-purpose corporate trustee which, apart from attracting a much lower ASIC fee, means it cannot be used for other purposes.
The alternative is setting up the corporate trustee for multiple purposes, such as acting as the corporate trustee for the SMSF and a trading entity.
Where the assets are held in the name of the sole-purpose corporate trustee only, the fund has sole ownership of the assets in case of a creditor dispute because there is nowhere else for the assets to go.
Suppose the corporate trustee is multi-purpose, and the assets are held in the name of the corporate trustee only. In that case, the fund may miss out because there can be confusion about which entity owns the assets.
The company’s constitution is one way of proving that the corporate trustee is a sole-purpose corporate trustee.
Individual Trustee Changes
On the other hand, any changes to individual trustees require an amendment to the trustee names on every investment owned by the fund.
It is incredibly time-consuming and can come with fees such as those imposed by share registries. Depending on how the trust deed has been set out, the deed may also have to be amended to change the trustee.
Note, too, that while Australian Trust Law does not require each individual trustee’s name to be listed as the legal owner of an asset, the ATO does.
However, the ATO recognises that some databases have limitations to recording all trustees. Under these circumstances, the ATO recommends that the fund documents all individual trustees’ names as owners of the investments.
In the last part of our series, we review trustee appointments, what happens if an asset is not held in the fund’s name and consider the requirement for an SMSF to have a unique bank account.
Read the Key to Owning SMSF Assets (Part 2).