Borrowing within your self-managed superannuation fund (SMSF) to acquire a property has become a very popular strategy for many of our clients. There are a number of benefits to this strategy, however it is important that a series of key steps are followed to ensure that no unforeseen consequences occur.

Below is a list of steps involved in a typical SMSF borrowing arrangement.

• Determine that borrowing would be an appropriate strategy within your SMSF. This would often involve the assistance and advice of your accountant or financial planner.

• Review the trust deed of the SMSF to ensure that the trustee has the power to borrow, grant security and allow assets to be held by custodians for the trustee. If the current deed does not allow this, then you should amend the deed.

• Review the investment strategy of the SMSF to ensure that it allows for the acquisition of the property and permits borrowing for that purpose. If not, you will need to amend the investment strategy.

• Source the property for purchase, negotiate the price and reach agreement with the vendor.

• Finalise the borrowing arrangements with the lender including in-principle loan approval.

• Determine who is to be the custodian. If you would like to use a new company, arrange for the new company to be setup. It is important to note that this company must be different to the SMSF trustee.

• The custodian resolves in writing to act as custodian for the SMSF trustee in the purchase of the property.

• The SMSF trustee resolves in writing to purchase the property and to appoint the custodian to act for the SMSF trustee as bare trustee of the bare trust.

• The custodian is named on the purchase contract as the purchaser and signs the contract accordingly. Note, not the SMSF or its trustee.

• The SMSF trustee provides all the deposit money for the purchase of the property. That is, money for the deposit should come directly from the SMSF's bank account.

• The custodian and SMSF trustee sign the bare trust deed. It is important to seek legal advice to confirm the correct dating of this document.

• The SMSF trustee signs all of the loan documents with the lender. Note, the SMSF trustee is the borrower.

• Purchase of the property is completed using only money coming from the SMSF's bank account or from the loan by the lender.

• The bare trust deed is submitted to the Office of State Revenue for payment of stamp duty (nominal duties apply).

• When the loan is eventually repaid the property can be transferred from the custodian to the SMSF for nominal stamp duty provided the bare trust deed has been stamped already.

Please note that the above steps only relate to properties located in NSW.

If you have any queries about the above or are considering this strategy, please contact our office for more information.