A bare trust in a Self-Managed Super Fund (SMSF) is a popular structure used to hold an asset, typically a property, when a SMSF implements a Limited Recourse Borrowing Arrangement (LRBA) strategy. A bare trust is a fundamental form of trust arrangement where a trustee is designated to hold property or assets solely on behalf of a clearly identified beneficiary. In this instance, the Self-Managed Super Fund (SMSF) is the ultimate beneficiary. In this type of trust arrangement, the trustee’s role is notably minimal and straightforward, primarily involving the safeguarding and eventual transfer of the trust property to the beneficiary once the loan is paid off, upon the beneficiary’s request.
The trustee, in this context, does not possess discretionary powers or extensive duties beyond this basic obligation. The essence of a bare trust lies in the absolute entitlement of the beneficiary’s’ to both the capital and the income generated by the trust’s assets. For CGT purposes, any disposal of the assets of the trust by a bare trustee will be treated as a disposal by the beneficiary i.e. the SMSF.
Source – ATO – Absolute entitlement
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