HDT and Shares

[A95]

Hello everyone,

I have a HDT and want to use it to buy/sell shares.
What's the correct/best way to set up a trading account?

How and from where do I transfer money to and from the HDT trading account?

At the moment the Trustee P/L has a cheque account and this account has been nominated for direct debit when purchasing shares.
I'm planning to transfer money into this account, when required, from my private LOC which has been secured by an IP.

The LOC is used only for investments and the trustee's account is used only for the trust's expenses.
Is there a significant difference when trading shares in the trust as opposed to trading in one's own name, assuming the same marginal tax rate?

Thank you
A95

[GreatPig]

I'm no accountant, but if it's your LOC and the trust's trading account, then I think you'd need to document the basis on which you're transferring your money to the trust for trading. If you want to claim interest deductions on the LOC, then I assume it would be by purchasing trust income units (the alternative being a loan at a commercial rate of interest).

However, if you hold income units in the trust, then all the share income (dividends) must go to you. If you're investing in shares, then capital gains could be discretionally distributed elsewhere, but if you're trading shares (ie. operating a trading business) then I'm not sure. In that case everything would be income and may also have to be distributed to the unit holder. If that's the case, then I don't see any tax differences between using the trust and doing it in your own name - except that in your own name you could offset losses against other gains of the same type (trusts can't distribute losses). There would also be asset protection differences. And trusts have some issues with carrying forward losses and the distribution of franking credits.

As I say though, I'm not an accountant and this is only as I understand it.

GP

[Mry]

Right on GreatPig.

Unless you are purchasing income units every time you make a contribution to the trust for the shares, you'd be best off making an agreement between the trust and yourself to charge the trust interest for the funds you are loaning it for the exact amount of the loan attributable to the funds given to the HDT for the purchase of the shares. That will let you claim an interest deduction for the shares that you are purchasing in the HDT within the HDT.

I must say though, if you plan on trading shares as a business operation, I'd put them in your own name as GreatPig suggested. Because in my many years in accountancy, I have only met 2 people out of over one hundred that have actually turned a consistant profit from share trading and when you make those losses, you don't want them trapped in a trust. :)

In general, I prefer share trading to be done in an individual's name. You may have a problem with complicated capital flows and difficulty in claiming deductions if you use a HDT.

Of course I don't know your situation so this is just advice in general.