SMSF Borrowing with Cleardocs – the process

Danni Kirwan, Marketing Executive

A number of our blog posts and ClearLaw articles over the past year or so discuss SMSF borrowing, — it continues to be a popular topic. Many people are unsure about the process, and what documents are required. Below, I set out the process, and the documents required, to get your SMSF borrowing ready through Cleardocs.

Overview

In overview, here’s what you need:

• An SMSF
  
• The SMSF needs an up to date Cleardocs deed
  
• Usually, the SMSF needs a corporate trustee — check with the lender
  
• You need an SMSF borrowing document package which includes a Declaration of Custody Trust
  
• Usually, the Declaration of Custody Trust needs a corporate trustee — check with the lender. Importantly, if you do need a corporate trustee for the Declaration of Custody Trust, then that company must be a different company from the one that is the SMF trustee (so you are likely to need two companies)

So you may need to:

• Set up an SMSF
  
• Update an existing SMSF’s deed
  
• Register a company, or two
  
• Change the SMF’s trustee to a corporate trustee

You’ll definitely need to order an SMSF borrowing package.

Before you start, find out the lender’s requirements.

Here’s the process step-by-step

Step-by-step

Step one: Have you got company trustees? You may need two

Most banks lending to SMSF’s require that both the SMSF and the Declaration of Custody Trust (contained in the SMSF Borrowing packages) have corporate trustees. This means you need two companies.

If you need to register one or both of them, then you can do so through Cleardocs.

For the company that is going to act as the trustee of the SMSF, make sure you tick the “Yes” box in the question interface that asks if the company will act solely as the trustee of an SMSF — as this will entitle you to a cheaper ASIC annual review fee.

You need to wait for ASIC to register your company before you continue with the next documents — as you will need the name and ACN number of the corporate trustee to complete the forms for the SMSF and for the borrowing package.

Step two: Set up SMSF, or update existing SMSF to Cleardocs deed

If you already have an SMSF with an up to date Cleardocs deed and with a corporate trustee, then you can skip to step 4 four.

To use the Cleardocs SMSF Borrowing packages, the SMSF will need to have a Cleardocs deed. This ensures:

• that your SMSF has the power to borrow in the first place; and
  
• that we know your SMSF deed works with any of the other related documents you purchase – such as the SMSF borrowing packages, or the Change of Trustee.

If you don’t already have an SMSF, then you can set up a new SMSF through Cleardocs for $137.50.

If you have an existing SMSF that does not have a Cleardocs deed, or that has an out of date Cleardocs deed, then you can update to the latest version of the Cleardocs deed for $99.

Step three: If required, change the trustee of the SMSF from individuals to corporate trustee

Most banks lending to SMSF’s are requiring the fund to have a corporate trustee. As I mentioned in my last blog post, many SMSF’s are also making the decision to change to a corporate trustee to enable easier administration in the circumstances of admitting or removing trustees, or the death of a trustee. Corporate Trustees can also allow for greater asset protection, and of course can enable a fund to operate with a sole individual as both the member and director of the corporate trustee.

If you have an SMSF that does not have a Cleardocs deed then you will need to update to a Cleardocs deed before you change the trustees. You need to update the deed with the funds current situation, and then use the Change of Trustee product to record the change of trustee/s.

If you are changing from individual trustees to a corporate trustee, then the document package Cleardocs provides will include a new trust deed as part of this package. This is because the deed differs depending on whether the trustee/s are individuals or a company.

Step four: Complete the SMSF Borrowing package

Cleardocs has two separate SMSF borrowing packages – one for borrowing from a bank, another for borrowing from a related party. Both packages require detailed information about the lender, the borrower and the asset to be purchased. To ensure you have all of the information required, it’s a good idea to download and complete the document checklist before you start filling out the online interface.

Have the lender review documents before you sign. It is much easier to change a document before it is signed than after it is signed.

More information

There’s more information about SMSF borrowing through Cleardocs:

• Self Managed Superannuation Fund Product Page
• Update to SMSF Product Page
• Change of Trustee Product Page
• SMSF Borrowing Product Page

Earlier blogs about SMSF borrowing:

• Instalment Warrants , SMSF borrowing, what's happening
• The banks and SMSF borrowing: remember the bank is acting for itself — not for the SMSF trustee(s)
• Part 1: Trading SMSF assets (and replacement assets) bought under an instalment warrant arrangement
• Part 2: Case studies of trading SMSF assets (and replacement assets) bought under an instalment warrant arrangement

As always, if you need more information you can call us on 1300 307 343.