SMSF Borrowing to acquire multiple assets — reduced prices from Cleardocs

Christopher Balmford, MD

If an SMSF needs multiple SMSF borrowing document packages, Cleardocs has reduced prices for the second and later orders. The discount is useful for SMSF trustee(s) who are acquiring more than one asset through more than one SMSF borrowing — whether at the same time or over a period, . . . even a lengthy period.
We can also help those SMSF trustee(s) and their advisers by automating an “order-replication process” for multiple orders. How many? . . . Well:

• several of our customers have needed a dozen or so SMSF borrowing document packages for the one SMSF; and
• one of our customers needed more than 100 document packages for the one SMSF. And he needed them all on the same day . . . our automated “order-replication process” saved him and his staff a lot of repetitive typing.

The full stories are below.

Why is the multiple order price reduction required?

The price reduction is in response:

• to the 7 July 2010 law change about SMSF borrowing — which clarified that each SMSF borrowing can be used by the SMSF’s trustee(s) to acquire only one asset, see below; and
• to customers who — to comply with the law — need a separate document package for each borrowing.

What does the law require about acquiring only “one asset” — especially shares?
Although the law changes that came in on 7 July 2010 confirm that for each borrowing the SMSF’s Trustee(s) make they can acquire only a “single acquirable asset”, there is a useful clarification for shares etc. The clarification is that the concept of “single acquirable asset” covers:

• a holding of shares in a company, a holding of units in a trust, or a holding of stapled securities (that is, shares in a company that are stapled to units in a trust);
• as long as that holding is of shares, or units, or stapled securities of the same class with the same market value.

For example, if the SMSF’s trustee(s) borrow to buy 10,000 ordinary shares in company X at $1.00, then that holding is seen as one asset. If the SMSF trustee(s) want to borrow to acquire another 2,000 of those shares at $1.04, then that second holding is a separate asset — and it requires a separate borrowing and a separate set of SMSF borrowing documents.

Similarly if the SMSF trustee(s) were to acquire 2 properties at the same time — each on a separate title — then the trustee(s) would need a separate borrowing and a separate set of SMSF borrowing documents for each property.

What sort of SMSF needs a dozen or so SMSF borrowing packages?
One of our customers is arranging for his own SMSF to borrow a fair amount from one of his related entities. Over the next few months or so, his SMSF’s trustee wants to use the loan money to acquire shares in about 12 different companies.

The new law makes clear that each time the trustee of his SMSF acquires shares — of the one company, in the same class, and at the same price — the trustee is acquiring a separate asset. Therefore:

• each time the Cleardocs customer acquires a separate holding, he needs a separate borrowing; and
• each of those holdings must have a separate set of documents — including: a separate loan agreement, a separate security document, and a separate declaration of custody trust (under which the custodian holds the asset on trust for the SMSF).

. . . and what sort of SMSF needs more than 100 SMSF borrowing packages on the same day?
One of our accountant customers was acting for a client who was buying more than 100 car spaces (before the recent law change). As each car space had its own Certificate of Title his bank took the view that each of them was a separate asset. Therefore, each car space needed to be covered by a separate borrowing and so required a separate set of documents. (By the way, our customer’s client was borrowing the money from one of the big 4 banks — apparently, the bank manager was somewhat irritated at having to prepare so many sets of loan documents.)

How does Cleardocs automate the “order-replication process”?
For the customer ordering the document packages for the 100+ car spaces, each order was going to be identical — other than for the Folio number on the Certificate of Title. So our IT Manager, Thomas Lam, wrote a bit of code that:

• created each new order;
• gave each new order an identifying name (which included the Folio number); and
• pre-populated each set of answers for each of the other 100+ orders — even to the extent of automatically changing the Folio number for each order.

We reckon Thomas’ bit of code saved our customer at least 10 minutes for each order — that’s more than 1,000 minutes, or more than 16 hours, of repetitive typing saved.
To make sure the automation was working properly, we did the first 3 orders one-at-a-time for our customer to check. He checked and confirmed they were correct. Then in one click we did the other 100+ orders for him.
It’s fair to say our customer was delighted by the efficiency delivered by the Cleardocs IT, and by Thomas. And he appreciated the significant discount we gave him too.

What are the reduced Cleardocs prices for multiple orders?
Cleardocs has reduced prices for the second, third and so on (even the 100^th) of the same type of borrowing package for the same SMSF to a flat $99 a package.
Here’s how the discount works for the 2 customers mentioned above:

• the Cleardocs customer buying shares in a dozen companies through a borrowing from a “related party”, pays the full fee ($598) for the first related party document package. But pays only a flat $99 for each related party borrowing package they buy later for the same SMSF; and
• the Cleardocs customer buying 100+ car spaces through a borrowing from a “bank”, paid the full fee ($199) for the first related party document package. But paid only a flat $99 for each of the other bank borrowing packages they bought.

The fact that one of those customers will order their SMSF borrowing packages over a few months and the other did them all on the same day is irrelevant. The discount applies to all orders of the same type of document package for the same SMSF throughout that SMSF’s life.
(By the way, the main difference between the Cleardocs documents package for a “bank” lender and a “related party” lender is that the “related party” package includes a loan agreement and, if the asset being acquired is a holding of shares etc, it also includes a security document.)

Did the law changes on 7 July clarify anything else?
Yes, the 7 July law change also clarified that:

• The borrowed money can be used to meet expenses incurred in connection with the borrowing;
• If the original asset purchased is shares, units, or stapled securities, then the original asset can be replaced — but only with shares, or units, or stapled securities, in the same entity and in the same class and of the same market value; and
• The SMSF can refinance its borrowing.

More Cleardocs information on SMSFs
You can read other articles concerning superannuation and SMSFs here.

Order SMSF related document packages
Set up an SMSF
Update an SMSF deed
Set up an SMSF pension
Arrange SMSF borrowing lending docs:

• for when the lender is a bank
• for when the lender is a related party

Set up an SMSF corporate trustee
SMSF Death Benefit Nomination - binding or non binding
SMSF Death Benefit Agreement - binding or permanent