Legal Ownership of Super Fund Assets

The ATO says that the trustees of SMSFs must ensure that the Fund's assets are held in a legally recognised ownership arrangement. This generally means the assets must be held in the name of the trustees on behalf of the Fund. In States or Territories where this is not possible, a caveat, instrument or declaration of trust must be executed for the asset.

SMSF's are required to be audited every year and the auditor must report to the ATO all instances where the Fund assets are not held in the correct name. This is considered to be a breach of the trustees duties and responsibilities.

Trustees then have to take prompt action to rectify these breaches otherwise they risk disqualification, which would result in them being ineligible to be a trustee of any superannuation fund.

There is a major practical issue where a Fund owns real estate as most Land Titles Offices around Australia generally prohibit registering "trusts" on the face of the property title deeds. What the ATO wants on the title deeds is for example "Peter Jones and Margaret Jones as trustee of the XYZ Family Superannuation Fund" but the land title's offices won't allow it. In this situation the ATO requires that a Declaration of Trust be executed to clearly show the Fund's ownership of the property.

The following three examples illustrate how the ATO expect Fund assets to be held so that trustees are complying with their duties and responsibilities:

Example 1

The XYZ Family Superannuation Fund has two individual trustees, Peter and Margaret Jones. The fund's assets must be held in the name of "Peter Jones and Margaret Jones as trustee of the XYZ Family Superannuation Fund".

Example 2

The LMN Family Superannuation Fund has a corporate trustee, LMN Pty Ltd. The fund's assets must be held in the name of "LMN Pty Ltd as trustee of the LMN Family Superannuation Fund".

Example 3

The ABC Family Superannuation Fund has two individual trustees, Richie and Daphne Benaud, and one of its assets includes a commercial property held in New South Wales. Since the New South Wales Land Title's Office doesn't allow for the name of the Fund to appear on the Title Deeds, the trustees must execute a Declaration of Trust which states that Richie Benaud and Daphne Benaud hold the property in trust for ABC Family Superannuation Fund.

Summary

Trustee's of SMSF's are on notice that they must act now to ensure that the assets of the Fund are correctly recorded or risk being disqualified from acting as trustee of the Fund.

Its advisable to have a non-trading company acting as trustee of the Fund for asset protection reasons and also to avoid the need to change the names recorded on investments each time a member leaves or joins the Fund.