Bare Trust for SMSF Property: Step-by-Step Setup Guide

Setting up a property purchase through a Self-Managed Super Fund (SMSF) is not simple — especially when borrowing is involved.

A bare trust structure is essential for compliance, but getting it wrong can lead to:
🚨 Double stamp duty
🚨 Invalid loan structures (LRBA issues)
🚨 Serious ATO penalties

This guide gives you a clear, accountant-level roadmap to set up a bare trust correctly in Australia.

📌 Key Takeaways

✔️ A bare trust holds property on behalf of a beneficiary (e.g., SMSF)
✔️ Required when using an SMSF loan (LRBA)
✔️ Must be set up before signing the property contract
✔️ Wrong setup can trigger stamp duty & compliance risks
✔️ Corporate trustee is strongly recommended
✔️ Professional advice is essential

What Is a Bare Trust?

A bare trust (custodian trust) is a simple legal structure where:

• The trustee holds the legal title of the property
• The beneficiary (SMSF) is the true owner

👉 The trustee has no decision-making power
👉 All income and capital gains belong to the beneficiary

🏗️ The Legal Structure Explained

Trustee (Legal Owner)

• Name appears on the property title
• Can be an individual or company
• Passive role only

Beneficiary (SMSF)

• Receives all income (rent)
• Responsible for expenses
• Entitled to capital gains

When Is a Bare Trust Required? (SMSF LRBA Rule)

A bare trust is required when an SMSF borrows to buy property under a:

👉 Limited Recourse Borrowing Arrangement (LRBA)

Why LRBA Matters

• Protects other SMSF assets
• Lender can only claim that specific property
• Other assets (cash, shares) remain safe

Bare Trust vs Discretionary Trust

Feature	Bare Trust	Discretionary Trust
Control	Beneficiary controls	Trustee controls
Income	Fixed	Flexible
Purpose	SMSF property	Tax planning & families
Rights	Absolute entitlement	No fixed entitlement

🧾 Step-by-Step: How to Set Up a Bare Trust (9 Steps)

1. Confirm the Structure

Consult accountant → ensure LRBA is required

2. Choose a Trustee

✔️ Corporate trustee recommended
✔️ Avoid future legal complications

3. Draft the Bare Trust Deed

Prepared by solicitor
Defines trustee + beneficiary

4. Set Up BEFORE Purchase

🚨 Most critical step
Trust must exist before signing contract

5. Apply for ABN & TFN

Required for:
✔️ Bank account
✔️ Lender requirements

6. Open Trust Bank Account

Used for:
✔️ Loan funds
✔️ Settlement payments

7. Arrange the Loan (LRBA)

Lender reviews:
✔️ Trust deed
✔️ Loan structure

8. Purchase Property

✔️ Title must be in trustee name only
❌ SMSF name must NOT appear

9. Maintain Compliance

✔️ Keep documents
✔️ Meet ASIC obligations
✔️ Stay audit-ready

💰 Cost of Setting Up a Bare Trust (2026)

Cost Type	Estimated Cost
Bare Trust Deed	$300 – $1,500
Professional Setup	$1,000 – $3,000
Corporate Trustee	$800 – $1,200
Ongoing Compliance	Varies

👉 Cutting corners can cost much more later

📊 Real Example (SMSF Property Purchase)

Property Value: $600,000
SMSF Cash: $240,000
Loan: $360,000

Structure:

• Trustee company holds title
• SMSF receives income
• Loan secured under LRBA

👉 If default occurs → lender can only claim property

📋 Bare Trust Setup Checklist

✔️ Confirm structure
✔️ Appoint trustee
✔️ Draft & sign deed
✔️ Set up BEFORE contract
✔️ Register ABN/TFN
✔️ Open bank account
✔️ Ensure correct title ownership
✔️ Maintain records

❌ Common Mistakes (And Fixes)

Mistake 1: Trust After Contract

🚨 Causes stamp duty issues

👉 Fix: Set up BEFORE signing

Mistake 2: Wrong Name on Title

🚨 Breaks LRBA compliance

👉 Fix: Use trustee name only

Mistake 3: Using Wrong Trust Type

🚨 Not ATO compliant

👉 Fix: Use proper bare trust deed

Mistake 4: Ignoring State Rules

🚨 Stamp duty surprises

👉 Fix: Get state-specific advice

❓ Frequently Asked Questions

What is a bare trust?

A trust where trustee holds asset, beneficiary owns it

Is it required for SMSF?

✔️ Only if borrowing (LRBA)

Who owns the property?

Legal: Trustee
Actual: SMSF

Can I live in SMSF property?

❌ No — strict ATO rules

Does bare trust pay tax?

❌ No — tax flows to beneficiary

Can it hold multiple properties?

❌ No — one asset per trust

🤝 How Titan Tax Helps

At Titan Tax, we simplify complex SMSF structures:

✔️ Bare trust setup guidance
✔️ SMSF compliance & structuring
✔️ LRBA advisory
✔️ Property tax planning
✔️ End-to-end support

👉 We ensure your structure is fully compliant from day one

🚀 Final Takeaway

A bare trust is not just paperwork —
👉 It’s the foundation of a compliant SMSF property strategy

Get it wrong → costly mistakes
Get it right → secure investment

📞 𝐂𝐨𝐧𝐭𝐚𝐜𝐭 𝐓𝐢𝐭𝐚𝐧 𝐓𝐚𝐱

📞 Phone: 0457 696 620
📧 Email: info@titantax.com.au

🌐 Website: https://titantax.com.au/

📍 Address: Werribee, Victoria, Australia