SMSF Custodian Bare Trust Deed

SMSF borrowing — meet the law and protect your other assets

Your SMSF wants to borrow to buy an investment. The law requires a special holding structure for a Limited Recourse Borrowing Arrangement (LRBA). Legal Consolidated drafts your Custodian Bare Trust Deed to meet those holding-trust requirements and protect your fund’s other assets.

We draft your Deed under s 67A of the Superannuation Industry (Supervision) Act 1993 (Cth). Your Bare Trustee holds the purchased asset for your SMSF. Our Deed restricts its powers and recovery rights.

Your SMSF borrows. Your Bare Trustee holds the asset.

Two trustees perform different jobs.

Your SMSF Trustee borrows the money for your fund. It manages the investment, collects the income and pays the loan.

Your Bare Trustee holds legal title to the purchased asset for your SMSF. It follows your SMSF Trustee’s lawful directions. It does not run a separate investment business.

Legal Consolidated’s Deed sets out those roles. It identifies the asset and records who holds it, who benefits from it and who gives the directions.

Build your SMSF borrowing structure in five steps

1. Give your SMSF the power to borrow

Check your SMSF Deed before committing to the purchase. Your Trustee needs the power to enter the arrangement.

Our SMSF Deed Update updates your fund’s governing rules. It also lets you review your trustees and members as you build.

2. Arrange the money

Speak with your lender about the loan. Work through the deposit, repayments and expenses with your accountant and financial planner.

Your SMSF needs enough cash to meet its commitments. The property still incurs expenses when the tenant stops paying rent.

3. Build your Bare Trustee company and Custodian Deed

Build a separate company to hold the asset as Bare Trustee. Then build your Custodian Bare Trust Deed on this page.

Enter the Bare Trustee’s details first. Enter your SMSF Trustee’s details on the next page. Our hints explain each question.

4. Get the purchase contract right

Your conveyancing lawyer settles the purchaser’s description and signing order. Give them your Custodian Deed and proposed loan documents before signing.

The contract, Deed and title documents must work together. Your State or Territory’s duty rules also affect the transaction. Your conveyancing lawyer handles those local requirements.

5. Complete the purchase

Your conveyancing lawyer completes settlement and registers title in the Bare Trustee’s name. Your SMSF receives the investment income and meets the loan commitments.

Keep the signed Deed with the fund’s purchase and loan records.

Why use a company as your SMSF Bare Trustee?

A property investment often lasts for decades. People die. Companies continue.

If a human Bare Trustee dies, someone must replace that trustee and deal with the title. That creates paperwork, checks and expense. A company continues to hold title when its directors change.

Your lender may also require a corporate Bare Trustee. Confirm its requirements before completing the purchase arrangements.

Your Bare Trustee needs the right company

The Bare Trustee holds an asset for your SMSF. It does not act as trustee of the SMSF itself.

That distinction matters when choosing the company. Use a standard proprietary limited company for the Bare Trustee. The reduced-fee Special Purpose Company serves a different role: trustee of the regulated superannuation fund.

Two companies. Two different jobs.

Your SMSF Trustee

Banksia Retirement Pty Ltd

Manages Banksia Super Fund.
Borrows for the fund.
Collects rent and pays the loan.

Your Bare Trustee

Banksia Custodian Pty Ltd

Holds the purchased asset’s title.
Follows lawful directions from your SMSF Trustee.
Uses a separate standard company.

Name your Custodian Bare Trust

Give your Bare Trust a clear name. For example:

Banksia Super Fund Property Holding Trust

Legal Consolidated places that name in your documents. The name identifies the arrangement. It does not give the Bare Trustee extra powers or create another company.

Your conveyancing lawyer confirms the purchaser’s wording on the contract. Do not assume the trust’s name belongs in that wording.

Keep control with your SMSF Trustee

Your SMSF makes the investment decisions. Your Bare Trustee holds title and carries out lawful directions.

Legal Consolidated drafts that division into your Custodian Deed. The Bare Trustee does not receive a free hand to manage your retirement wealth.

Your lender also examines the holding structure. Our Deed addresses the Custodian’s authority to sign documents and grant security over the specified asset. Your lender’s loan and security documents must respect the same limited recourse boundary.

Identify the asset your SMSF buys

Your Custodian Deed identifies the asset the Bare Trustee holds. Give your conveyancing lawyer the full property description and title details.

The law uses the expression “single acquirable asset”. One property purchase sometimes involves several titles. The legal test looks beyond the street address.

The ATO explains that test in Self Managed Superannuation Funds Ruling SMSFR 2012/1. Legal Consolidated’s Deed records the specified Trust Asset around which your holding arrangement operates.

SMSF Custodian Trust keeps the bank behind the glass: Carter Holt Harvey

The banker sees your SMSF’s wealth and wants it. Legal Consolidated drafts your Custodian Bare Trust Deed to restrict recovery to the purchased asset and protect your SMSF’s other assets. We draft the Deed to meet the holding-trust requirements in s 67A of the Superannuation Industry (Supervision) Act 1993 (Cth). Your lender must also honour those limits in its loan and security documents.

The loan alone does not complete the structure. Your Custodian’s indemnity gives it rights to recover costs and liabilities. Legal Consolidated restricts those recovery rights in your Deed. An unrestricted indemnity would open a claim against your SMSF’s other assets.

In Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 268 CLR 524, a bank demanded repayment and appointed receivers. The receivers sold trust assets and paid the bank. The High Court confirmed that a trustee’s right of indemnity gives it a proprietary interest in trust assets available to meet properly incurred trust debts.

That case concerned a trading trust, not an SMSF borrowing arrangement. It shows why the Legal Consolidated indemnity clause matters: holding assets in a trust does not, by itself, put them beyond creditors’ reach.

We restrict the Custodian’s indemnity and recourse to rights relating to the specified Trust Asset. We close off an unrestricted claim against your SMSF’s wider asset pool. Your loan and security documents must respect the same limits.

Repairs and improvements: use the right money

A leaking roof needs repair. An extension improves the property. The borrowing rules treat those expenses differently.

Borrowed money may meet permitted repair and maintenance costs. It must not fund improvements. Work paid from your SMSF’s other money also needs care: changing the asset into a different asset raises a separate issue.

The ATO illustrates these distinctions in SMSFR 2012/1. Check the proposed work before committing the fund’s money.

Your SMSF pays off the loan. What happens next?

Paying off the loan does not automatically transfer the title. The Bare Trustee still holds it.

Your accountant and conveyancing lawyer then consider whether to retain the holding structure or transfer title to your SMSF Trustee. They also check the duty requirements for that transfer.

Legal Consolidated’s cover letter explains the next steps. Keep it with your Custodian Deed so you have those instructions when the loan ends.

Build directly with Legal Consolidated

More than 4,600 accountants, financial planners and lawyers build legal documents on our website.

You deal with the law firm preparing your documents. We supply your completed Custodian Bare Trust Deed, supporting minutes and our law firm’s cover letter and instructions.

Start for free. Read the hints as you answer the questions. Save your answers and return later. Contact us if you need help with the building questions.

Complete your SMSF’s legal documents

Your Custodian Deed forms part of your fund’s wider legal structure:

• Update your SMSF Deed, trustees and members.
• Prepare your SMSF Investment Strategy and supporting Statement Library.
• Prepare an SMSF Commercial Lease when your fund leases commercial premises.
• Prepare a Company Power of Attorney for your trustee company.
• Prepare a Reversionary Pension Kit to plan for your pension after death.