SMSFs face legal battle for 50/50 property rights
Self-managed super funds (SMSFs) that combine to purchase property could face legal action despite the legality of the purchase, executives advised at the Institute of Chartered Accountants SMSF conference yesterday.
Gaden Lawyers partner Vicki Grey said two SMSFs, each with a 50 per cent interest in a unit trust, may experience issues when trying to flesh out disagreements.
She said the law, sections 72EA and 72EB, was ambiguous and did not make it clear if 50/50 unit trusts structures were compliant, and which party had control.
"From a legal perspective, I think it is an unclear area of the law. I don't think there is a clear answer yes or no," she said.
Gaden clients in the same situation had received different rulings from the Australian Taxation Office (ATO), according to Grey.
She said if the SMSF trustees disagreed, the trustee of the unit trust would be forced to act, which would in turn force the regulator to take action.
Grey said it was the most uncertain area of limited recourse borrowing, and the major lenders were generally unwilling to lend, even with an ATO exemption.
Daniel Butler, managing director at DBA Lawyers, said although 50/50 ownership of a unit trust by two SMSFs was okay legally, trustees could be caught under administrative law.
He said the Commissioner only had to issue a notice and a trustee could face an expensive legal battle.
"You don't have a problem until that notice arises and if you do, you're up the proverbial creek because you're in the matter of…administrative law," he said.
"You're going to be fighting a lot of legal battles and a lot of legal costs to take that on, so when you're saying to clients, '50/50 - you're comfortable with that?', take that on board otherwise you could be sued," he said.
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