Transferring property & possible issues

Hi guys,

I have a scenario I want to run through and would like to try and evade any potholes and try to minimise stamp duty etc. Is the below feasible?

The individual is a member of their SMSF and also has a unit trust which owns property.

1. Super Fund has >$300,000 cash on top of existing investments
2. Super Fund buys existing units from member at market value for $300,000 being say 30% of the unit trust.
3. Unit trust has a loan currently from member of approx $500,000
4. Unit trust sells one of the investment properties it holds to the individual at market value being say $600,000
5. Individual pays through clearing existing $500,000 loan plus $100,000 cash

RESULT -

• Unit trust holds investments giving it a value of $900,000 - $1,000,000 (no debt remaining) - no change in net.
• Super Fund retains existing investments plus holds say 30% in Unit trust valued at approx $300,000 - no change in net.
• Individual holds the property, plus $200k cash but only 70% of Unit trust and no longer owed $500,000 from Unit trust - no change in net.

Overall net position remains the same but the underlying property now becomes PPOR.

 

This is something the trustee should get legal advice on. Lots of issues. Complex advice and expensive.
Could be possible

 

s66 of SISA prohibits a smsf trustee acquiring units (or most investments) from a member or an associate. However, the trustee of the UT could redeem member units and issue new units to the SMSF in some cases to circumvent that problem. However, the trust must do this in a clear sequence and not redeem first and then issue new units (as then there is no beneficiary at a moment in time) which is technically a concern and that requires some consideration. However the issue is fatal as the UT has borrowed money. The source of the borrowing doesnt matter.

SIS Reg 13.22C / D prohibits a SMSF acquiring units in a UNGEARED trust if that trust has maintained a borrowing in the past three years.

I would suggest competent SMSF advice as there may be strategies to consider but generally this type of problem requires a 3 year plan to effect as the unit trust is not eligible to be a ungeared unit trust.

Part IVA would also apply to the proposal as would the sole purpose test but the ATO wouldnt likely address either as a concern as it would apply tax law to address the offending act. The proposed profit you think that could be taxed in the SMSF may be subject to dual tax. The redemption of unit trust units must be at market value meaning the present unit owner would incur a CGT amount as well as the SMSF receiving a share of profit. Given that the SMSF would receive a share of trust income that is greater than would otherwise occur its also potentially a tax problem that may see the smsf taxed at 45% on its share of the income it receives is greater than it may be under arms length arrangements.
Non-arm's length income