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Superannuation - Security Trust Bundle (for an existing Super Fund)

This package of documents includes:

1. a Self Managed Superannuation Fund Deed or a Deed of Variation (of your existing deed) the terms of which enable the trustees to advantage of sections 67A and 67B of the Superannuation Industry (Supervision) Act 1993 (SIS);
2. an Investment Strategy for Superannuation Fund, or a Variation the Fund's Investment Strategy enable the trustees to advantage of sections 67A and 67B of SIS;
3. an Asset Acquisition Agreement between the AAT Trustees, the super fund trustees and those Members participating in the investment ;
4. an Asset Acquisition Mortgage between the AAT Trustees and the party providing the loan (assuming that party is a Member); and
5. a Mortgage form to be lodged against the property title.

How this Asset Acquisition Trust works

The sole purpose of this Asset Acquisition Trust is to enable the Superannuation Fund Trustees, to purchase an asset (ultimately to be held on trust by the Superannuation Fund Trustees for one or more members of the Fund) (the Superannuation Asset) using the debt instalment procedure set out in sections 67A and 67B of SIS.

It is essential that the procedure set out in sections 67A and 67B are followed in respect to the acquisition of the SMSF Asset, otherwise it is possible that the Super Fund may become non compliant.

The procedure to acquire the relevant Superannuation Asset, is as follows:

1. the Super Fund must have been established. The Fund Members that participate in the acquisition of the Superannuation Asset are called the Participating Members;
2. there must be a Superannuation Asset being acquired, not an asset being refurbished/improved/refinanced;
3. The Superannuation Fund Trustees must ensure that the acquisition of the Superannuation Asset is permitted by the Fund's Deed and also investment strategy and will not breach the Regulations. All deeds and investment strategies that have not been amended post July 2007 will need to be amended to allow for borrowing.
   
   In particular, the Superannuation Fund Trustees must have considered:


• the Sole purpose test - any investment must be assessed carefully to ensure that it is being made for the purpose of the provision of Member benefits, and not for some other purpose;
• In-house asset rules - these still apply;
• the Arm's length - if a Member is providing the loan funds, the terms and conditions of the borrowing arrangement must effectively be as if negotiated at arm's length;
• Related party acquisition rule - the prohibition of acquiring assets from Members and related parties. There are exceptions including the acquisition of business real property and listed securities (if acquired at market value);
• Cash flow requirements - if the income to be received from the Superannuation Asset will be insufficient to meet the interest payments due under the Finance Agreement, there must be adequate income from other assets owned by the Fund that may be used to meet the interest payments;
• Commercial issues - if on analysis the investment does not provide commercially acceptable returns, this may raise both investment strategy and sole purpose test concerns;
• Tax considerations - Capital Gains Tax, GST (on assignments to the SMSF Trustees), land tax and stamp duty.
4. please make sure that the reasoning behind the acquisition of the Superannuation Asset is documented. This means valuations, correspondence, minutes, and of course a consideration of the Super Fund's investment strategy;
5. the funds required to purchase the Superannuation Asset will be provided by:
• contributions by the Participating Members via their Accumulation Accounts; and
• the balance of the funds will be provided by a Financier/Lender (see below);
6. the Superannuation Fund Trustees establish Asset Acquisition Trust (we call the trustees of this trust, the AAT Trustees) to acquire the Superannuation Asset. The Asset Acquisition Trust needs to be in place before any contract (such as an Offer and Acceptance for a property) is signed to purchase the Superannuation Asset;
7. currently the ATO has not decided whether the Superannuation Asset must be the only property of the Asset Acquisition Trust. Being cautious we have determined that there will be one AAT for each Superannuation Asset (or Replacement Asset). The Superannuation Fund Trustees need to ensure that this is the case;
8. The AAT Trustees may now sign a contract to purchase the Superannuation Asset. If the circumstances require, the contract is to be conditional upon such things as the Trustee obtaining finance or the Participating Members disposing of other assets held in their Accumulation Accounts in order to raise the necessary funds.
9. the AAT Trustees are to enter into an agreement with the Lender (the Finance Agreement) to advance monies to the AAT Trustees to acquire the Superannuation Asset;
10. the Finance Agreement is to provide (amongst other terms and conditions) the Lender with limited recourse against the SMSF Trustee, to only the Superannuation Asset. Taxpayer Alert 2008/5 shows each of us that the ATO is watching these loan facilities very closely:
    
    "The borrowing is of a limited-recourse nature, noting particularly that any recourse that the lender has under the arrangement against the trustee must be limited to rights reolg to the asset acquired (or any replacement). In other words, the lender is able to recover monies where there is a default on the borrowing by repossessing or disposing of the asset acquired (or any replacement), but cannot recover such monies through recourse to the SMSF's other assets".
    
    Care needs to be taken if a Member or associate provides a guarantee to support the loan:
    
    a personal guarantee (from a Member)..... may result in recourse being made to the assets of the SMSF other than the asset acquired (or any replacement) in the event that the guarantee is enforced against the trustee as the principal debtor, contrary to the intent that the exception in subsection 67A and 67B of the SIS Act only applies to limited recourse borrowings..."
11. the AAT Trustees will be the legal owner of the Superannuation Asset;
12. the Superannuation Fund Trustees will be the beneficial owner of the Superannuation Asset. As such, if the Superannuation Asset is real estate, the SMSF Trustees should lodge a caveat or declaration of trust on the title;
13. the AAT Trustees will pay to the Lender the agreed interest and instalments over the term of the Finance Agreement;
14. the Superannuation Fund Trustees will pay the AAT Trustees by instalments over the term of the Finance Agreement;
15. if there is a default under the terms of the Finance Agreement, the Lender does not have recourse to any other assets of the Superannuation Fund - only the Superannuation Asset (or any Replacement Asset). The Participating Members may also be required to provide the Lender with additional security, however the circumstances of each transaction and the security requirements of each Lender, will be different;
16. if the loan is being made by a Member or associate of a Member then additional caution needs to be taken. Again Taxpayer Alert 2008/5:
• monies advanced by a member or related party at zero or less than a commercial rate of interest could be characterised as a contribution to the SMSF. This may result in the trustee/member having to pay excess non-concessional contributions tax under Division 292 of the Income Tax Assessment Act 1997;
• monies advanced by a member or related party at greater than a commercial interest rate of interest may result in a breach of the sole purpose test outlined in section 62 SISA, on the basis that the excessive interest rate may mean that the SMSF is not being maintained solely for the purpose of providing superannuation benefits, and/or the trustee breaching section 65(1)(b) SISA, which prohibits the trustee from giving financial assistance to a member of the SMSF or to a relative of such a member using the resources of the SMSF;
• interest capitalised may result in the arrangement failing to meet the requirement that the money borrowed is or has been applied for the acquisition of an asset under sections 67A and 67B SISA;
17. subject to the Requirements, the Superannuation Fund Trustees may at any time after the Effective Date give written notice to the AAT Trustees to deal with the Superannuation Asset to the extent that the Acquired Asset becomes a Replacement Asset;
18. the SMSF Trustees may at any time after all instalments, fees and charges (incurred by the AAT Trustees pursuant to the Finance Agreement) have been paid in respect to that asset, require the AAT Trustee to assign the legal title to the SMSF Trustees. The notice by the SMSF Trustees must be in writing (Transfer Notice);
19. as soon as is reasonably practicable following receipt by the AAT Trustees of the Transfer Notice, the AAT Trustee will do all such acts, matters and things as are required to transfer the Superannuation Asset to the Superannuation Fund Trustees.