Owning property within an SMSF comes with strict legal and regulatory requirements. One of the most fundamental aspects is ensuring that title deeds accurately reflect the fund’s ownership. Proper property ownership documentation is essential to comply with superannuation laws and Australian Taxation Office (ATO) regulations. Any discrepancies in the title deed could lead to compliance issues and expose the SMSF to risks.
Who Should Hold the Title Deed in an SMSF?
How the title deed is registered depends on whether the SMSF holds the property outright or through a borrowing arrangement.
Direct SMSF Ownership
If an SMSF purchases property without borrowing (i.e., without a Limited Recourse Borrowing Arrangement, or LRBA), the title deed must be registered in the name of the SMSF trustee—whether individual trustees or a corporate trustee.
Limited Recourse Borrowing Arrangement (LRBA)
When an SMSF acquires property through an LRBA, the legal title is usually held by a separate entity known as a bare trust or holding trust. The SMSF remains the beneficial owner, while the bare trustee (custodian) has the legal title until the loan is fully repaid.
Common SMSF Compliance Issues Related to Title Deeds
Here are the most common issues SMSF trustees may face regarding title deeds and how to stay compliant:
1. Incorrect Trustee Name on the Title Deed
The ATO requires that the trustee’s name on the title deed aligns with the SMSF’s legal ownership structure. Any discrepancies should be corrected promptly to avoid compliance issues.
2. Failure to Update the Title When Changing Trustees
If an SMSF changes trustees (e.g., transitioning from individual trustees to a corporate trustee, replacing a corporate trustee, or adding/removing fund members due to death, incapacity, or resignation), the title deed must be updated accordingly. Failure to do so could result in non-compliance.
3. Caveats or Other Encumbrances on the Title
Any third-party claims on SMSF property, such as caveats or encumbrances, can pose a risk to the fund’s assets. Lodging a caveat without reasonable cause may restrict the fund’s control over the property and lead to compliance breaches. Trustees should ensure the SMSF’s property remains free from unauthorized claims and seek legal advice if necessary.
4. Unregistered Mortgages on LRBA Properties
SMSF trustees must comply with Sections 67A and 67B of the SIS Act, which govern LRBA structures. An unregistered mortgage on an LRBA property can create compliance risks, including breaches of borrowing regulations and potential non-arm’s length income (NALI) tax consequences.
5. Failure to Remove a Registered Mortgage from a Fully Paid LRBA
Even after the loan is repaid, the mortgage may still be recorded on the title, posing compliance risks. Trustees must ensure the mortgage is properly discharged by submitting the required documentation to the land title office.
Updating and Correcting Title Deeds
To correct a title deed, trustees should seek legal advice from a solicitor or conveyancer to ensure compliance with state land title regulations. Some corrections may require a formal application and supporting documents. Since land title regulations vary by state, trustees should refer to their respective land title office for specific requirements.
Key Takeaways for SMSF Trustees
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Ensure the property title deed accurately reflects the SMSF’s legal ownership structure.
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Always review title deeds when making changes to the SMSF trustee structure.
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Seek professional advice when setting up an LRBA to avoid compliance issues.
By maintaining accurate title deeds, SMSF trustees can minimise compliance risks and protect the fund’s assets in line with superannuation laws.
How National Audits Group Can Help
At National Audits Group, we understand the complexities of SMSF compliance, particularly when it comes to title deeds and property ownership. Our team of experienced auditors can help ensure that your SMSF is compliant with all legal requirements and that your title deeds reflect the correct ownership structure. Whether you’re setting up an LRBA or updating your trustee structure, we provide expert advice and services to protect your fund and minimise compliance risks. Contact us today to ensure your SMSF is fully compliant and your property assets are secure.
Ralph Tolentino, Auditor, National Audit Group
