Trustees of SMSFs are required to keep the money and other assets of the fund separate from any money and assets that are held by the trustee personally, with a failure to do so potentially leading to fines and other penalties (see Regulation 4.09A).
The Tax Office generally considers this requirement means trustees of SMSFs should ensure that both the trustee and the fund be disclosed on title, and best practice is to adopt this approach.
However in many cases, disclosure of the trust relationship is not possible. For example, most cryto-currency exchanges only record legal ownership, not beneficial ownership.
Generally the Tax Office’s preferred position in these cases appears to be to have an SMSF document the fund’s ownership of an asset by using one of the following:
1. a caveat;
2. signing a ‘declaration of trust’;
3. implementing a ‘legal instrument’.
Each of these approaches have potential issues, for example:
1. An owner of a property may be prevented from registering a caveat where they are already registered on the title;
2. In many states there is a potential stamp duty risk in signing a declaration of trust – and in any event, the trustee will not in fact be declaring a trust over the asset;
3. The ‘legal instrument’ approach is unclear.
Practically, we see some SMSFs sign a short form document titled an ‘Acknowledgement of Trust’, which simply confirms formally that the trustee is the registered owner of the property, holding it on trust for the fund, despite this fact not otherwise being recorded by the asset register.
While the document arguably does nothing that the trustee minutes on acquisition and other evidence that would normally exist confirms, it does provide self-serving (and hopefully contemporaneous) evidence to the SMSF’s auditor, the Tax Office and any trustee in bankruptcy.