Naturally, it is best practice that assets in a self-managed super fund (SMSF) must be registered in the name of the trustee. However, is this actually a legal requirement?
The default answer is that it is a requirement that assets must be registered in the name of the trustee. However, you won’t find this in the Superannuation Industry (Supervision) Act 1993 (Cwlth). Rather, it is case law requirement. For example, O’Bryan J in Dawson v Dawson [1945] VLR 99 stated:
“I am convinced that his co-trustees are entitled to have secured to them the joint control of this trust property. It is not only the plaintiffs’ privilege to have a joint control of the trust property, it is their duty to acquire it.”
In more recent times, legal commentary such as Halsbury’s Laws of Australia has described the position as follows:
“In addition to securing possession of trust property, which includes trust documents, a trustee must ensure that title to the trust property is properly vested in him or her, or, in the case of multiple trustees, ensure that the trust property is transferred to and held in the names of all trustees.”
Naturally, this can pose a concern where a new trustee is admitted to an SMSF and ownership of the assets has not been updated.
However, almost all of the old case law requirements can be excluded by the trust deed. (The only old case law requirement that can’t be excluded is the duty for the trustee to perform honestly and in good faith for the benefit of the beneficiaries: Armitage v Nurse [1998] Ch 241, 253.)
Thanks to the current limited recourse borrowing arrangement rules, most modern deeds have excluded this rule and instead expressly allow assets to be registered in a custodian or nominee arrangement, which often is defined broadly enough to include one of multiple trustees.
However, I stress that despite the above it is best practice to have assets registered in all the trustees’ names and have other documentation if appropriate as evidence of ownership and that the trustees own the assets as trustees. Regardless of what the trust deed says, if there are, for example, four trustees yet assets are only registered in three trustees’ names, you won’t endear yourself to your auditor or the Australian Taxation Office (ATO).
Mixing rules
Guidance on the ATO’s view on the mixing rules is found in ATO interpretative decision ID 2014/7. It suggests the position is very strict. However, a deeper technical analysis reveals there might often be some “flexibility”.
The facts in the decision are as follows:
- The trustees of the SMSF are members of a family.
- The fund has a standard employer-sponsor and all the trustees work for the standard employer-sponsor in various capacities.
- There are several unit trusts owned and operated by the SMSF and/or the trustees.
- The trustees have stated that, for administrative simplicity and cost savings, unit trusts jointly owned by the SMSF and trustees as well as unit trusts owned solely by the SMSF all operate using the one bank account. The account is held in the name of the SMSF.
The ATO decided an SMSF must open and maintain its own bank account, as it is required to keep its assets and money separate from that of other entities.
However, the actual law is as follows (Superannuation Industry [Supervision] Regulations 1994 (Cwlth) reg 4.09A(2)):
“A trustee of a regulated superannuation fund that is a self managed superannuation fund must keep the money and other assets of the fund separate from any money and assets, respectively:
(a) that are held by the trustee personally; or
(b) that are money or assets, as the case may be, of a standard employer-sponsor, or an associate of a standard employer-sponsor, of the fund.”
Accordingly, if there is no standard employer-sponsor, it is essentially impossible to contravene regulation 4.09A(2)(b). In other words, if there is no standard employer-sponsor, half the operating standard is automatically complied with!
This raises the question of what is a standard employer-sponsor. Without going chapter and verse, it is an increasing rare thing and those with modern deeds are highly unlikely to ever have to worry about them.
But what about regulation 4.09A(2)(a)?
It is easy for this to be contravened where an SMSF has individual trustees. However, if the SMSF has a corporate trustee where the corporate trustee’s only function is to act as trustee of the SMSF, then regulation 4.09A(2)(a) becomes almost impossible to contravene. This is because the trustee is unable to mix fund assets with its personal assets, as it’s unlikely to have any personal assets.
Therefore an SMSF that has a sole purpose corporate trustee and a modern trust deed is almost always guaranteed to comply with these rules.
Joint tenants or tenants in common?
There has always been some debate as to whether individual trustees should have assets (particularly real estate) registered as tenants in common or as joint tenants. My view is that technically both are allowable, however, joint tenants is best. The reasoning is well articulated in Halsbury’s Laws of Australia:
“In all jurisdictions the trustee legislation provides that a power vested jointly in two or more trustees may be exercised by the survivors of them. This does not disturb the general property law principle that property held as tenants in common does not give rise to a right of survivorship. Hence, if trustees hold trust property as tenants in common, a deceased trustee’s tenancy in common passes to his or her personal representatives.
However, this does not serve to confer the office of trustee on the personal representatives, as a person cannot act as trustee unless properly appointed. This difficulty can be avoided by:
(1) ensuring that trustees hold trust property as joint tenants, in which case a right of survivorship applies; or …”
However, some confusion is caused by Self Managed Superannuation Funds Ruling 2009/1, which states:
“Joint tenants jointly own the same property. A joint tenant has a right to the whole property but does not have a right to an individual share of the property. When one joint tenant dies, the surviving joint tenant becomes the sole owner of the property (known as survivorship). This type of ownership is not considered appropriate for SMSFs due to the lack of a separate share of an asset attributable to the SMSF.”
I raised this as a question, submitted via The Tax Institute to the ATO back in 2012 via the now defunct National Tax Liaison Group superannuation subcommittee.
The ATO’s response was that it provides flexibility and will accept both forms of registration. More specifically, they stated:
“… there is no ‘ATO preferred’ form of registration (joint tenancy v tenancy in common) in regards to the co-ownership of real property between trustees of an SMSF, so far as the requirements of the SIS Act or the Superannuation Industry (Supervision) Regulations 1994 are concerned.”
In conclusion, with most modern deeds assets don’t have to be registered in the names of all trustees … but do it anyway as a matter of best practice. If an SMSF has a sole purpose corporate trustee, it’s fairly impossible to contravene the mixing rules; and although it’s best practice for joint trustees to own assets as joint tenants, if they are registered as tenants in common instead, the ATO probably won’t view that as a contravention.
