Instalment warrants

Discussion in 'Loans & Mortgage Brokers' started by Reni, 2nd Dec, 2008.

Join Australia's most dynamic and respected property investment community
  1. Reni

    Reni New Member

    Joined:
    1st Jul, 2015
    Posts:
    3
    Location:
    Vic
    We have bought 2 properties in SMSF.
    We are currently applying for loan to the banks.

    Do we need two additional bare trusts or security trusts in order to borrow money or one trust can handle all properties, the current 2 that will settle on the same day and future purchases?

    Thanks
    Reni
     
  2. MikeF__

    MikeF__ Member

    Joined:
    1st Jul, 2015
    Posts:
    12
    Location:
    Sydney, NSW
    Hi Reni

    I recently assisted a client who purchased two properties in their SMSF using one security trust entity. In this case the lender was St George however I think you should check with your lender to be entirely sure that they will accept this.

    Mike
     
  3. Nigel Ward

    Nigel Ward Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    989
    I'd suggest two bare trusts.
     
  4. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    1,075
    Location:
    Sydney, NSW
    Hi Reni,

    As Nigel suggested, it probably will be one for each asset.
    Now St George have a loan which a branch based lender can help you with (previously it was dealt with in the business banking area).

    Don't forget the interest rates are higher than a standard home loan.

    You should speak to a SMSF specialist.

    Cheers,

    Dan

    PS Before making a decision speak to a SMSF specialist!
     
  5. TwoDogs

    TwoDogs Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    377
    Location:
    Sydney
    What is a bare trust, how does it differ from unit/discretionary ?

    Or does a bear trust have big claws, a predilection for honey and hang around in the woods :rolleyes:
     
  6. MikeF__

    MikeF__ Member

    Joined:
    1st Jul, 2015
    Posts:
    12
    Location:
    Sydney, NSW
    Sorry but have to disagree on the view/s of muliple seperate entities acting as security custodians.

    This is because an entity that acts as a 'bare trust' is only holding the asset on trust for the super fund/members and has an obligation to transfer legal title of the propertyto the fund if the fund so directs. As a result it therefore has no any active duites.

    Because of this I know of no legal reasons why a bare trustee can not be the security custodian of multiple assets.

    I also know from first hand experience that the lender's lawyers will also agree with this view provided the applicable deed(s) allow this.

    If the above has the blessing of the lenders lawyers (do you think that they would allow this if it put the banks security position at risk) then I'm with them on this point ie less cost to you now and in the future.

    At the end of the day all lenders in the SMSF loan space will require you to have independent legal & financial advice so as Dan says, see an SMSF specialist.

    Regards

    Mike
     
  7. Nigel Ward

    Nigel Ward Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    989
    Read what I wrote again Mike.

    I never said 2 trustees, just 2 trusts. A very deliberate choice of words.

    Cheers
    N
     
  8. Nigel Ward

    Nigel Ward Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    989
    The essence of a bare trust is that the trustee has no discretion and must act on any instructions from the beneficiary. The trustee has no active duties to perform, his only duty is to hand over the asset to the beneficiary when the beneficiary demands. Several court cases address the "test for Bare trusteeship", relying on the prescribed duties of the trustee in determining the nature of the trust. If a trustee has "active duties" in relation to the asset of the trust then no Bare Trust exists.
    It is a fixed trust as distinct from a discretionary trust were the beneficiaries have an expectancy but no certain entitlement to the assets of the fund.

    Cheers
    N.
     
  9. Reni

    Reni New Member

    Joined:
    1st Jul, 2015
    Posts:
    3
    Location:
    Vic
    Dear all,
    Thank you for the comments you sent me.

    Seeing SMSF specialist is a good advice. However not easy to find and trust them because they have different views. I posted the question after talking to some of them.

    I have been told that we need two bare trusts, because the bare trust can handle one only. The reason for going for bare trust rather than any other type in the role of security trust is because after releasing the title to the beneficiery ( SMSF fund) no stamp duty and CGT apply vs the other trust types. Is this true?

    ATO has clearly stated on the website (Q&A) that they have no view on whether the security trust should hold only one asset.
    Thanks,
    Reni
     
  10. C3PO

    C3PO Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    94
    Location:
    Adelaide, SA
    Hmm.... what's to stop me from taking out a loan myself at the best rate the bank will lend me, then lending those funds on to my SMSF? (provided I provide the necessary guarantees etc)

    It seems to me quite unfair to penalise a SMSF with a higher rate.
     
  11. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    1,075
    Location:
    Sydney, NSW
    Hi C3PO,

    I do believe that this is where a SMSF specialist knowledge comes into practice.

    Perhaps a higher interest rate is charged as the lender may not have any recourse to the borrower apart from the asset which is secured and borrowed against. When individuals borrow to buy an asset the lender will chase the borrower if they can't get the funds back, this may not be the case with a SMSF hence for a higher risk a higher rate of interest is charged. This is similar with credit cards, higher risk higher rate of interest charged...

    Cheers,

    Dan

    PS I am not a SMSF specialist. Speak to a SMSF specialist before doing anything with a SMSF!
     
    Last edited by a moderator: 3rd Dec, 2008

Property Investors! Ready to Pay Less Tax? Estimate how much Property Depreciation you can claim on your Investment Property. Washington Brown's calculator is the first calculator to draw on real properties to determine an accurate estimate.