SMSF Technical Education & Strategies


The essential terms of the bare trust for a SMSF borrowing

by Peter M Townsend BA, LLB, FAICD, FCLA
Townsends Business and Corporate Lawyers.


1.1 Under specific sections of the of the Superannuation Industry (Supervision) Act 1993, an SMSF can borrow funds to acquire certain types of properties. A Bare Trust deed is an important legal document that ensures the proper arrangement is in place for the Super Fund to borrow funds for the acquisition of assets.

1.2 In this section, we will outline some of the key aspects of a Bare Trust including:

What is a Bare Trust and how does it differ from an ordinary trust?
Who can/should be the Bare Trustee?
What are some of the key provisions in a Bare Trust deed?
Who appears as the purchaser and signs the contract for sale?
Stamping of a Bare Trust deed
Do you require a separate Bare Trust for each property purchased?


1.3 The information provided is of general nature only and should not be relied upon in lieu of specific legal advice.


2. What is a bare trust?

2.1 A Bare Trust is a trust where the beneficiaries are absolutely entitled as against the trustee and one in which the trustee has no active duties to perform.

2.2 The SIS Act’s “super gearing rules” do not actually require a Bare Trust deed to be in place to take advantage of the borrowing exception. In fact, the section merely requires that the property be “held on trust” and that the super fund has “a right to acquire legal ownership by making one or more payments after acquiring the beneficial interest” These requirements are best satisfied by a Bare Trust.

2.3 Under a discretionary trust, the trustees have the power to make various decisions with the trust property such as the power to buy, sell and/or invest various trust assets. In a Bare Trust, however, the Bare Trustee is permitted to do nothing unless at the direction of the beneficiary (the Super Fund trustee). The trustee’s discretion makes a discretionary trust unsuitable for use in a super gearing arrangement.

2.4 A discretionary trust will not fall under the super gearing exception because it requires that the trustees have no power other than to “hold on” to the property until the loan is fully repaid. Also, superannuation funds are not generally within the class of beneficiaries of discretionary trusts. Merely from a stamp duty point of view, a discretionary trust deed will attract $500 stamp duty as opposed to $50 for a Bare Trust deed.

2.5 With a unit trust, entitlements are unitised. In the context of super gearing, there is only one beneficiary who will be ultimately entitled to the trust property. As such there is no point in having a trust that allows different classes of units allocated to different beneficiaries.


3. Who can/should be the bare trustee?

3.1 A Bare Trustee can be anyone except the Super Fund trustee. This is because a trust relationship does not come into existence where the trustee is holding the trust property for itself.

3.2 Although there is nothing legally wrong with having individuals as the Bare Trustee our view is that it is strongly preferable to have a corporate Bare Trustee in place so that any deaths or movements in underlying membership of the fund will not affect the Bare Trustee’s property holdings.

3.3 For example, a death of an individual Bare Trustee will require at least the following action to be taken:
· attend to grant of probate of deceased trustee;
· appointment of new trustee
· arrange for transfer of title to new trustee;
· stamping Transfer (including proving to the Office of State Revenue why the transfer shouldn’t attract full duty);
· registration of transfer

3.4 Furthermore if the individual appointed as a Bare Trustee happens to be a member of the Super Fund who wishes to exit from the fund as a member, due to, say, a divorce in the family, then again the trustees will face similar administrative difficulties.

3.5 Some lenders require a corporate Bare Trustee (such as Westpac). In most cases banks will want to have a look at the Bare Trust deed for the purpose of granting the loan approval.

3.6 The use of individual Bare Trustees is similarly unwise because those same individuals will in most cases be the members of the Super Fund and it is very easy to get the records mixed up ensuing a higher likelihood of a merger of the interest of the trustee and the interest of the beneficiary.

3.7 For example, Mary and John are the trustees of M J Superannuation Fund. John runs a small bakery in an arcade. They wish to purchase a commercial property through their Super Fund by borrowing funds from a bank. John and Mary decide that setting up a company is too much hassle and fear that they may lose the property unless they act quickly. They decide to have John to act as the Bare Trustee. The loan gets approved and the contract exchanged and settled. Thereafter, John’s bakery doesn’t do so well and John faces bankruptcy charges. John hasn’t been very prudent in record keeping and the creditors soon find out that he owns a commercial property under his name. John is unable to prove that his ownership in the commercial property is as the Bare Trustee of the Super Fund. Consequently, the ATO treats the property as John’s and the Super Fund misses out on the Super Fund altogether. The ATO then levies tax on the property at individual rates and the loan could be characterised as unauthorised loan, rendering the Super Fund non-complying.

3.8 If, however, the Bare Trustee is a company then if one of the individuals associated with the Super Fund dies, becomes bankrupt or leaves the Super Fund then all that the Super Fund has to do is simply transfer or buy back the shares from the departing individual to someone else, requiring no need to attend to any of the aforementioned steps.

3.9 Our recommendation is to make the Bare Trustee a company and have its sole role as being security trustee for the property, then there is no question of anything outside being attacked.


4. What are some of the key provisions in a bare trust deed in a super gearing context?

4.1 A Bare Trust deed must outline the role of the Bare Trustee. The deed must be carefully drafted so that it is in full compliance with the legislative exception but also must be acceptable to the banks as they will require to check the deed before granting the loan. We think that the trust deed should contain provisions clearly showing:

(a) that the sale of contract was between the vendor and the Bare Trustee as the apparent purchaser (and not the Super Fund trustee)
(b) that all of the purchase money was provided by the Super Fund trustee as the beneficial owner and its lender and none by the Bare Trustee
(c) that the Bare Trustee is simply holding the property on trust
(d) the obligations of the Bare Trustee to only act on any request or direction from the Super Fund trustee
(e) a direction from the Super Fund that the Bare Trustee is not to transfer the property to the Super Fund trustee until the last payment due to the lender of the loan has been made.
(f) that the Bare Trustee must sign any documents relating to monies provided by the Super Fund trustee so that the Super Fund trustee can provide the property as security to the lender. Some banks will try to insert the word “guarantee” in this clause but extreme care must be taken to ensure that the guarantee does not extend to other assets of the super fund. Failure to comply with this requirement may render the entire arrangement invalid under section 67(4A).

4.2 The Bare Trust deed drafted by Townsends Business and Corporate Lawyers have been reviewed and approved by NAB, Westpac and St George.


5. Who signs the contract of sale ?

5.1 The Bare Trustee must sign the contract as the legal purchaser. In DKLR Holdings Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) it was held that there is potential for double duty where a contract makes reference to the trust. Therefore, no reference to the Bare Trustee’s capacity as the trustee of the Bare Trust should be made in the contract or the Transfer. The certificate of title will simply bear the name of the Bare Trustee as the registered proprietor of the property.

5.2 As the title does not acknowledge the trust relationship, the Bare Trustee will need diligent record keeping and all necessary resolutions properly drafted and signed to prove what the Bare Trustee was doing. As a general rule, anything done by the Bare Trustee must have an accompanying minutes or resolutions.

5.3 For example, where the property is being leased, a written direction from the Super Fund to the Bare Trustee to enter in to the lease and the Bare Trustee’s direction to the lessee to pay the rent to the Super Fund should be created.


6. Does a bare trust deed need to be stamped?

6.1 Under s55 of the Duties Act 1997 (NSW), duty of $50 is chargeable on the Bare Trust deed if the Commissioner is satisfied that the full purchase price came from the Super Fund (and its lender).

6.2 When the bank’s loan is repaid there is no further need for the Bare Trustee, so the Super Fund calls for transfer of title from the Bare Trustee to the Super Fund. To avoid full stamp duty on that transfer we have to rely on the “apparent purchaser” exemption, which has a minimal cost of $50 and $10 for each counterpart in NSW. (The other states have their own similar mechanisms in order to achieve the same result.)

6.3 You have to be able to show the Commissioner of Stamp Duty that the Bare Trustee was the apparent purchaser and that the Super Fund was the real purchaser. This is done with a Statutory Declaration which attachs a trail of documents that shows how the money was supplied to the Bare Trustee. You would need bank statements showing money coming from the Super Fund’s bank account, copies of cheques to be linked to bank statements and loan documentation.

6.4 In years to come finding the records could be a nightmare. It is crucial, therefore, to get the Bare Trust deed stamped now using the statutory declaration to the Commissioner. The eventual transfer to the Super Fund will be stamped at a concessional rate provided you can produce the stamped Bare Trust deed.


7. Do you require a sperarate bare trust deed for each property purchased?

7.1 A Bare Trust deed is a tailored document designed to ensure all the key requirements are met for each individual case. A separate Bare Trust deed should be prepared for each purchase as it is much easier to prove to the Office of State Revenue that the Super Fund and its lender provided all the purchase monies.


For more information contact
Lawrence Shim - Solicitor
P 829 66 222 / F 8296 6200 / E


While Townsends Business & Corporate lawyers believe that the information contained herein is reliable, no warranty is given to the accuracy and persons who rely on it do so at their own risk. This information is intended to provide background information only and does not purport to make any recommendation upon which you may reasonably rely without taking specific advice. In particular, it should not be considered financial product advice for the purposes of the Corporations Act. If you would like more information on this article or any other SMSF information provided by Townsends, please contact them at


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