Understanding SMSF Corporate Trustees and Bare Trusts: How to Properly List Names on the Contract of Sale

When establishing a Self-Managed Super Fund (SMSF), one of the first decisions that needs to be made is whether to appoint individual trustees or a corporate trustee. This choice can have significant implications for the management of your SMSF, particularly when it comes to legal transactions such as purchasing property. If the SMSF is involved in a bare trust structure, the naming convention on legal documents—especially contracts of sale—becomes even more important. In this article, we'll explore the role of SMSF corporate trustees, how they relate to bare trusts, and what name should appear on the contract of sale when buying property.

What is an SMSF Corporate Trustee?

An SMSF corporate trustee refers to a company that assumes the role of trustee for the SMSF. Unlike individual trustees, where each fund member acts as a trustee, a corporate trustee is a single legal entity that is responsible for managing the fund’s assets, ensuring compliance with superannuation laws, and acting in the best interests of fund members.

Advantages of a Corporate Trustee:

1. Limited Liability: A corporate trustee shields individual members from personal liability. If the fund faces legal issues or debts, the corporate trustee—rather than individual members—holds that responsibility.

2. Clearer Fund Structure: Having a corporate trustee simplifies fund administration, especially in funds with multiple members, since the company is the legal owner of assets.

3. Easier Succession Planning: The company structure makes it easier to manage changes in trusteeship. If a member of the fund wishes to retire or pass away, the corporate trustee continues to operate without disruption.

What is a Bare Trust?

A bare trust is a trust arrangement where the trustee holds the legal title to an asset on behalf of the beneficiary, with minimal obligation beyond following the beneficiary’s instructions. The beneficiary retains all beneficial rights to the asset, including the power to decide how it is managed or disposed of.

In the context of an SMSF, a bare trust is often used in situations where the fund borrows money to purchase property under a limited recourse borrowing arrangement (LRBA). The bare trust holds the legal title to the property, while the SMSF (and its members) retains the beneficial ownership. This ensures that the SMSF complies with superannuation law, which restricts borrowing for investment purposes.

Trustee Structure for SMSFs and Bare Trusts

- SMSF Corporate Trustee: When an SMSF has a corporate trustee, that company is the legal trustee of the SMSF. It holds all the assets and is responsible for compliance with the Superannuation Industry (Supervision) Act (SIS Act).

- Bare Trust Trustee: A separate corporate trustee often manages the bare trust, holding legal title to property acquired by the SMSF under an LRBA. The SMSF members are the beneficiaries of the bare trust, while the corporate trustee manages the property on their behalf.

What Name to Put on the Contract of Sale?

When an SMSF is purchasing property—whether using a corporate trustee or a bare trust—the correct name of the trustee must appear on the contract of sale. This ensures that the property is legally attributed to the right entity and prevents any confusion about ownership. Below, we break down the naming conventions for both SMSFs with corporate trustees and those using bare trusts.

1. If the SMSF Uses a Corporate Trustee:

For SMSFs with a corporate trustee, the company itself is the legal owner of the SMSF’s assets, including any property purchased. Therefore, the name of the corporate trustee should appear on the contract of sale.

Example:

If the corporate trustee is called "XYZ Pty Ltd," the correct name on the contract would be:

"XYZ Pty Ltd as trustee for the [Fund Name] Superannuation Fund."

This clearly indicates that the company is acting as trustee for the SMSF, and the property is being purchased on behalf of the fund.

2. If the SMSF Is Using a Bare Trust:

In cases where the SMSF is borrowing to acquire property and uses a bare trust structure, the bare trust’s corporate trustee (which is often a separate entity from the SMSF's corporate trustee) should be named on the contract. Even though the SMSF is the beneficial owner of the property, the bare trust holds the legal title.

Example:

If the corporate trustee of the bare trust is "ABC Pty Ltd," the name on the contract would be:

"ABC Pty Ltd as trustee for the [Bare Trust Name]."

The contract should specify that the property is being held for the benefit of the SMSF. This ensures that the transaction reflects the proper ownership structure and complies with relevant superannuation rules.

3. Combined SMSF and Bare Trust Structure:

In some cases, an SMSF may use both a corporate trustee and a bare trust structure to purchase property. This is common in limited recourse borrowing arrangements (LRBAs). In such instances, the contract must reflect both the corporate trustee of the SMSF and the trustee of the bare trust.

Example:

If "XYZ Pty Ltd" is the corporate trustee for both the SMSF and the bare trust, the contract might read:

"XYZ Pty Ltd as trustee for the [SMSF Name] Superannuation Fund, as trustee for the [Bare Trust Name]."

This approach makes it clear that the company is acting in both its role as trustee of the SMSF and as trustee of the bare trust, holding the property on behalf of the SMSF members.

Why Getting the Name Right Matters

Correctly identifying the trustee on the contract of sale is essential for a number of reasons:

1. Legal Clarity: It ensures there is no confusion about ownership of the property. If the wrong name appears, it may cause difficulties when transferring ownership or handling taxation.

2. Superannuation Compliance: Using the correct trustee name ensures that the transaction complies with superannuation laws, particularly when the property is being purchased via an LRBA within the SMSF.

3. Asset Protection: If the names are not listed correctly, it could expose members to personal liability, especially if the trustee's responsibilities are not clear.

4. Taxation: Properly identifying the trustee is essential for correctly attributing any income or capital gains from the property to the SMSF for tax purposes.

Conclusion

When buying property through an SMSF or using a bare trust, it is crucial to understand the correct trustee structure and ensure the proper name is listed on the contract of sale. For SMSFs with a corporate trustee, the trustee company's name should appear. In the case of a bare trust, the trustee of the bare trust is named on the contract, though the SMSF retains beneficial ownership of the property.

If you would like a recommendation of a good SMSF accountant, then please reach out.

Loan Market Matthew Stack - 0423 237 242

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