The benefits of investing in an SMSF allows members to have control over investments and have the choice of investing in many areas such as direct property, listed shares, managed funds, private investments and unique/unusual investments. The super fund holds these investments in line with the fund’s investment strategy with the overall objective of building wealth for retirement for the members of the fund.
It is critical when trustees make investments that they are careful that the correct ownership is recorded on the investment. The trustee of the fund can either be an individual trustee or a corporate trustee.
A Corporate Trustee or Individual?
From our experience, the most appropriate, and efficient way to hold SMSF’s investments is in the name of a corporate trustee which importantly is not a trading entity. As a result, personal assets are completely separate. The trustee company mustn’t have another active role, such as being a trading entity; otherwise, the SMSF assets could be confused with the trading operation.
Below is an example of the correct way to record ownership for investments held by the fund as a corporate trustee:
ABC Pty Ltd ATF (as trustee for) the ABC Superannuation Fund
An individual trustee structure allows up to 4 individuals to be trustees and members. Whilst, costs are slightly lower there are risks that the investments of the fund are confused with private finances. As an example, we often find trustees incorrectly transferring funds online, as the banking details generally don’t identify the name of the fund when online.
If an individual is removed or there is a change in structure, then it could be expensive and time-consuming updating all the investments in the fund. An example of the correct way to record the ownership for investment held by the fund under individual trustees is:
Bob Ross and Belinda Ross ATF (as trustee for) the ABC Superannuation Fund
Ownership of Direct Property Investments
Investing in real property is subject to the property laws of each state. These laws can dictate how the superfund can express its ownership of the asset; for example, this could include preparing a caveat or a declaration of trust to support the fund’s purchase of the property (generally, a direct property asset cannot be held in trust for the fund). We usually would be looking for an acknowledgement of trust to declare that the property is held on behalf of the super fund. When acquiring a property, the settlement and purchase documentation should refer to the superfund name, to ensure there is no confusion.
Also, it is essential that if individual trustees are named on the title of the property, it is held as tenants in common, not as joint tenants. This ensures there is no legal implications upon the death of a member. We sometimes see only one trustee named on the title, when there are two or more individual trustees. This has a range of compliance issues, namely that the asset is not separate from the trustee’s assets but can also cause legal problems if the trustee dies.
Life Insurance Policies
Lastly, life insurance policies can also cause headaches for auditors and trustees alike when they are not in the correct name and don’t mention the fund. Some plans are not meant to be in the superannuation fund. The policy needs to be owned by the fund for the superfund. If the super fund is paying for premiums which should not be paid the fund, this causes multiple compliance breaches such as early access and separation of assets.
Having investments in the correct name ensures that the ownership is transparent and compliant with the SIS Act and SIS Regulation 4.09, which requires superannuation fund investments to be kept separate from personal assets of the fund.
Trustees should not take shortcuts when opening investments, as this could come back and cause significant headaches further down the line. It might be simple at the time to open or purchase the investment in an individual name only, but taking the extra time to have it recorded correctly under a trust with the trustees recorded means legal protection for the members of the fund. This shows a clear separation between personally owned investments and investments held by the superfund, which is vital in a situation such as an individual trustee goes bankrupt, or family law matters when benefits become payable from the fund, such as a death benefit. If you have any questions on the correct way to name investments, please contact Michael on 1800 767 329.