SMSF Joint Tenants vs Tenants in Common – Which is better?

Question: SMSF Joint Tenants vs Tenants in Common is a common discussion. I agree that Joint Tenancy is generally dangerous because of the CGT regime as per your previous PRUDENCE (2nd Edition) article. However, should Trustees in an SMSF own property as Joint Tenants? This stops the property becoming an asset of the deceased and avoids probate. This seems to be the common approach. Susan Kathleen Grace, Chartered Tax Advisor

SMSF Joint Tenants

Mum & Dad, as Trustees, must hold assets as Joint Tenants or Tenants in Common

Answer: Susan, in my 28 years of practice in superannuation law, I have often heard this argument. However, there is no legislative or ATO support for it.

So which is more effective: SMSF Joint Tenants or Tenants in Common?

Not that I think the ATO has any special abilities to interpret legislation, but ATO ruling SMSFR 2009/1 states ‘joint tenants are not considered appropriate for SMSFs due to a lack of a separate share of an asset attributable to the SMSF.’ This has shocked advisors who suggest ‘mum and dad’ hold SMSF property as joint tenants. The argument being that joint tenancy stops the property from entering the Will’s domain. Thus, avoiding any potential challenges from mistresses and illegitimate children. See our Deeds that reduce this occurring here.

ATO disagrees with itself

At the ATO’s ‘2012 Superannuation Technical Meeting’ in defiance of his master’s view, the ATO employee disagreed with SMSFR 2009/1. He argued that there is no ‘ATO preferred’ way of holding joint property and that each method has its own ‘administrative efficiencies and risks’.

This does nothing to improve certainty for accountants and advisors looking to the ATO for a transparent decision. Even though the ATO may hold a particular view, the Court often takes a different approach.

A more sinister problem arises when over controlling lawyers draft SMSF Deeds that require assets be held as ‘Joint Tenants’, and other deeds that force ownership to be ‘Tenants in Common’. This is a silly thing to do – SMSF Deeds should contain no regimented powers. Such restrictions are already set out in the SIS Regulations. SMSF Deeds should be ‘permissive’, NOT regimented.

At Legal Consolidated all of our Trust Deeds are permissive. You can build them online. Arguably, I have drafted more SMSF’s than any other tax lawyer in Australia – over 16,000. All are ‘permissive’. This approach has won the day at many ATO audits. SMSF Joint Tenants or Tenants in Common? The choice belongs to you and your accountant and adviser – not the lawyer.