Bare Trust

A bare trust is a legal structure that holds the property on behalf of the SMSF until the loan is repaid. SMSF regulations require that any property acquired with borrowings (e.g., a mortgage) be held in a bare trust, with the SMSF as the primary beneficiary (or beneficial owner).

To set up a bare trust, you will need to determine the trustee (new or existing company) and arrange a bare trust deed and associated minutes. Whether you’re a new or existing customer of Grow, you can order your bare trust (and trustee company) online here: Bare Trust Order Form

To set up a bare trust with Grow is as follows:

• Bare trust only (using an existing company) – $799
• Bare trust with new trustee company – $1375

You can order your bare trust online here: Bare Trust Order Form

The bare trust trustee should hold the property title and nothing else. Any rental income, property expenses, fees, land tax, and other costs are received or paid by the SMSF trustee, so there is no requirement for a separate bank account for the bare trust. A bare trust doesn’t have its own ABN or TFN, and there is no requirement for the bare trust to lodge a tax return or prepare accounts. The only ongoing cost relating to a bare trust are the ASIC fees for the trustee company, which is paid by the SMSF.

Yes, you can use a bare trust to buy both residential and commercial properties. Each property purchase with borrowings requires its own unique bare trust, but the same trustee company can be used for multiple bare trusts.

No. Only one property can be held in a bare trust at a time. To purchase multiple properties, you must set up a separate bare trust for each property. The same trustee company can act as trustee for multiple bare trusts.

The most common mistakes when setting up a bare trust for SMSF property investment are:

1. Putting the incorrect name on the property purchase contract;
2. Signing the bare trust documents at the incorrect time.

The name on the contract varies depending on the state the property is located. When the bare trust deed is signs also varies depending on the state the property is located. You will either sign the bare trust documents before or after signing the contract.

Whether an SMSF bare trust needs to be stamped depends on the state in which it is being established. Here are the stamping requirements for some Australian states:

• New South Wales (NSW): Duty is payable, and the Declaration of Trust must be lodged through a Revenue NSW (OSR) agent on Duties Online or through the OSR public lodgement system. The OSR’s EDR system does not allow agents to duty stamp holding trusts, so the deed and other required documentation must be dropped off at one of their Revenue NSW locations or posted to them. Double stamp duty can be avoided if the exemption under Section 55 of the Duties Act, 1997 is met.
• Victoria (VIC): No duty is payable on an Asset Acquisition Trust (AAT) in Victoria, but the Deed must be lodged with the State Revenue Office (SRO) through an SRO agent on Duties Online or through the SRO’s public lodgement system.
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• Northern Territory (NT): Duty is payable, and the executed Deed must be dropped off at the appropriate location.
• QLD, SA, ACT, TAS & WA – Stamp Duty is not payable on the declaration of Trust (bare trust deed not required to be stamped).

The specific requirements and fees may vary, so it is advisable to contact the local revenue office or seek independent legal advice to confirm the stamp duty obligations for an SMSF bare trust in a particular state.