SMSF trustees warned about overpaying stamp duty

Property investors who use their self-managed super funds to borrow and acquire property need to ensure they use an advisor who fully understands the complexity of state property laws or face the prospect of paying double or even triple stamp duty on their purchases.

“We have eight different jurisdictions and each have their own different independent laws, their own property laws, their own stamp duty laws, and their own land tax law,” said Daniel Butler, director of DBA lawyers, during an address at this week’s National SMSF Conference hosted by the Institute of Chartered Accountants.

“Filling out some of these forms can be quite tricky, and if you are not filling them out properly they could backfire on you,” he says.

“There is the risk of paying double duty. I am not embellishing this point. We have seen triple duty paid upfront before the transaction has passed through ASIC.”

One way to incur additional stamp duty, he says, is for an investor to pay for a portion of an investment property using his or her own funds such as writing a personal cheque for the deposit.

In this scenario, a trustee could incur additional stamp duty charges when the loan is paid out and the property title is returned to the super fund. (Limited recourse borrowing arrangements require that the property title be held by a holding trust while the loan is being repaid).

“The deposit and every dollar paid on that property must be paid by the super fund,” Butler says.

“I can tell you that those clients who don’t take advice upfront and pay the deposit from their own pocket – 10 of 15 years down the track they could be facing another layer of stamp duty,” he says.

In fact, Butler advises accountants to indemnify themselves against future claims if their client has already paid the deposit out of their own pocket.

States differ on what must be in place before a contract can be signed. For example, in Queensland and Western Australia a holding trust deed must be signed before SMSF trustees enters into a contract to acquire a property.

“You even have to be careful how the purchaser is described on the contract, because this could incur stamp duty issues.

“We have done transactions all cross Australia and we have found little details in each jurisdictions,” Butler says.

And don’t expect much sympathy from state revenue offices if you incur extra costs and charges.

“The job of state revenue offices is to raise taxes, so don’t expect too much pity from them,” he says.

“Best practice is to have the structure and the documents in place at the time of signing that contract. In some jurisdictions this could prove fatal to a double or triple stamp duty condition.”