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ATO clarifies view on SMSF gearing for property acquisitions

On 20 November 2012, the ATO issued Taxpayer Alert 2012/7 covering issues with SMSFs and property acquisitions where borrowing is involved.

For those advisers recommending borrowing strategies it highlights some areas where compliance beaches have occurred. The key aspects in these breaches relate to ensuring that the appropriate parties’ names are on the correct documents such as the contract for sale, holding trust, title of the property and the loan agreement. Additionally the sequence of events in terms of the formation of the SMSF, the holding trustee, the holding trust and the signing of the contract of sale must be correct.

One new area of clarity in the Alert is the requirement for the trustee of the holding trust to be in existence prior to the signing of the contract together with the formation of the holding trust. Given the propensity of the major financial institutions to require corporate entities for both the SMSF trustee & holding trustee this will limit the capacity to rely on the questionable use of “or nominee” provisions in contracts.

Failure to get these aspects right could lead to both SIS and tax penalties as well as the potential to have to dispose of the acquired asset.

If you would like more information about SMSFs or other matters, please contact Multiport Technical Services on 1300 364 672 or SMSFconsulting@multiport.com.au.
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