Another Blow to Hybrids

[Able]

One BIG issue with the tax office in Australia is that they are a law unto themselves, and whats ok this week might not be next week.

As we all know, the ATO can reverse and obliterate its own decisions, or change the date of an event or preted that it never happened, without any real regard to the impact of the tax payer.

This really sucks where you are an investor or you are in business because you never ever have a solid foundation to go forward on............a decision you make today might kill you in the future, because the ATO has reversed a decision...

All i would like to do is be able to hold investment with asset protection in place and not be penalised over holding it in my own name. The ATO does its best to complicate matters.

Maybe as property investors we should all just wait until rent yields more than double so that we then can hold properties in trust and not have to worry about the negative cash flow

I'm sure the Government would not mind residential rents doubling..... considering it is almost a "rental crisis" when rents increase 20%

Regards
Alistair

 

[julia]

I am not usually one to support the ATO, but it hasn't changed its mind. Fletchers case and TR95/33, over 10 years ago, pointed out that if it is clear your intent is not to eventually make a profit out of the investment then you only get a deduction equal to the income. There have been many posts on this forum saying that Accountants who do not recommend HDTs are not up with the times or too conservative.

 

[Rolf Latham]

Hi Julia

im not on about specifics here, I have to defer to the specialist like yourself for that, I have neither the knowledge nor the research tools to do so.

I have heard that there are oodles of cases where the ATO make retrospective changes to "binding" rulings and legislation ?

I cant assume these are all hearsay ?

ta
rolf

 

[julia]

I have heard that there are oodles of cases where the ATO make retrospective changes to "binding" rulings and legislation ?

I cant assume these are all hearsay ?

You are absolutely right Rolf and I give them a rev on this when ever I get the chance. But it is not the case this time. The HDT knockers weren't just being wet blankets we had real concerns that people just didn't want to hear.

I was talking to a solicitor who was promoting HDTs and pointed out the doubts I had with TR 95/33 and Fletchers case and he agreed with me! He said they prepare the deeds because clients are demanding them so the best thing they can do by clients who are hell bent on having a HDT is to make the deed as good as they can but they too believed it could fail. I have copped this over and over again re HDTs over the years. Clients getting annoyed with me and in many cases going elsewhere because I still won't agree with them.

 

[Rolf Latham]

Hey Julia :O)

in your business youd better knowwhere to stand and then stand your ground, i dont envy that !

I believe there is no clear right or wrong here often................only shades of grey

ta
rolf

 

[DaleGG]

Hi Julia

Whilst I respect your right to think differently than some of us; I am a little perplexed by some of your comments here. I thought you "reluctantly agreed" to use HDT's not that long ago after discussions with the NTAA.

I can't find anything using the search feature but I am sure that one of the smarter people on this forum will be able to find it.

What prompted this latest change to your thinking?

Dale

 

[julia]

Whilst I respect your right to think differently than some of us; I am a little perplexed by some of your comments here. I thought you "reluctantly agreed" to use HDT's not that long ago after discussions with the NTAA.

I can't find anything using the search feature but I am sure that one of the smarter people on this forum will be able to find it.

What prompted this latest change to your thinking?

That is right Dale, I reluctantly agreed, (with faith only in a conservative version) but Iam relieved that I managed to find a better way for my clients based on their particular circumstances. The NTAA got me to the stage of feeling I should let my clients take the risk if they were fully aware. I haven't changed my thinking.

This maybe an interesting thread for clients on how accountants try to find the balance of providing "service" Just like the solicitor who feels they are at least better off with one of his deeds than going elsewhere

 

[Twitch]

I'll try again. Here's "this" and here's the "other one".

 

[julia]

Twitch,

I still just get a bleeping sound. Maybe my access to the forum is limited in some way.

 

[Twitch]

Twitch,

I still just get a bleeping sound. Maybe my access to the forum is limited in some way.

the post contained some colourful language maybe ? he he


....actually it's nothing earth shattering, from April 2005.....

Here's an unpopular take on this as I know most are gung-ho on HDTs.

After more advice it appears to me that this aspect of HDTs creates the key risk of buying property through an HDT. This part, of buying something for $1 when its market value is much less than $1, is where the whole claimability could be shot down in the courts. It is not an arms length transaction and this fact is potentially enough (or has been in past cases) to bring the transaction into question.

It appears that the precedents stated in facts sheets on HDTs to support various benefits of HDTs are based on cases involving discretionary and/or unit trusts, not HDTs. Now an HDT is neither so the precedents don't necessarily apply.

IMHO its a case of buyer beware, HDTs are not on the firm grounding that they are sometimes portrayed here.

Oh, and I predict the all ords will be 5740ish on 14/3/07

 

[DaleGG]

Hi Julia

Thank you for your explanation. That is very interesting, indeed.

Dale

That is right Dale, I reluctantly agreed, (with faith only in a conservative version) but Iam relieved that I managed to find a better way for my clients based on their particular circumstances. The NTAA got me to the stage of feeling I should let my clients take the risk if they were fully aware. I haven't changed my thinking.

This maybe an interesting thread for clients on how accountants try to find the balance of providing "service" Just like the solicitor who feels they are at least better off with one of his deeds than going elsewhere

 

[JIT]

If capital gains are not distributed to the unitholder - or rather, if the unitholder has no right to capital gains - then this would likely be the case where the income return is less than the loan interest.

If capital gains are also distributed to the unitholder, then I think there would be an obvious commercial explanation, provided of course that the likelihood of capital growth and income exceeding the interest rate was good (as it typically is with real estate).

GP

Yes, I agree, and I think one must be careful in distinguishing 'capital growth', 'capital gain', 'capital distributions' and 'capital' in these discussions...

GSJ

 

[geoffw]

Now now Twitch. That last sentence pretending to be a quote was naughty

 

[JamesGG]

Whilst I respect your right to think differently than some of us; I am a little perplexed by some of your comments here. I thought you "reluctantly agreed" to use HDT's not that long ago after discussions with the NTAA.

I can't find anything using the search feature but I am sure that one of the smarter people on this forum will be able to find it.

Hiya,

While certainly not smarter, I think this may be the post that you are referring to, Dad. In particular;

Due to the NTAA supporting the concept of Hybrid discretionary trust we have faith in a concervative version of the concept...

Speaking of which... for whatever it's worth, my take on this is simple. Those who know better than I, are not worried. Therefore, I have no reason for concern, which means I can focus instead on doing what I do best.

Cheers

James.

 

[alexlee]

Speaking of which... for whatever it's worth, my take on this is simple. Those who know better than I, are not worried. Therefore, I have no reason for concern, which means I can focus instead on doing what I do best.

With all due respect (to Dale and others) the ATO can throw wild punches from the least-expected quarters. The ATO can be political and change its policies at, for all I know, the whim of the Commissioner. Who expected them to basically shut down a large part of the the primary producer tax schemes? Lots of smart people who knew better than most got caught out.

History is filled with people who knew better (or, in retrospect, should have known better) getting killed when the environment changed. There are too many smart people holding too many opposing views (witness the current debate on the subprime issue in the US) for them all to be right. Again with all due respect, if your business is built on something that has worked so far, it's harder for you to change your views even in light of new information. You really don't want to change course, have to rebuild everything and find out you were wrong and nothing changed, so you're more likely to just assume (or pretend) everything is as before.

All the investment banks must have known subprime was going to be an issue eventually, but they were making too much from underwriting the bonds. Investors must have doubted the Enron figures, but the share kept climbing. Ford and GM must have seen their sales fall while Toyota's kept climbing, but they just didn't want to compete directly with Toyota because their way had worked so far. Who wants to leave a gaming table early when they're winning?

I'm not saying this is the last word in HDTs, of course. It may well be nothing is challenged, the ATO allows current setups, or it just doesn't surface as a problem for years. But there IS risk.
Alex

 

[keithj]

I think it's well known that the smart guys & also politicans have DTs. The ATO has considered attacking DTs but thought better of it.

How many have of them have HDTs ?

 

[julia]

Dale and James,

Please do not feel I have posted the information about the PBR as a personal attack on you, for which you have to retaliate. I posted the information because I know we are all interested in learning everything we can about what the ATO thinks regarding HDTs. Surely you also found this information of benefit.

By the 90 views it got in the first hour and a half of posting the thread and nearly 1,000 views in 2 days I think all agree it was a worthwhile piece of information.

 

[JamesGG]

Dale and James,

Please do not feel I have posted the information about the PBR as a personal attack on you, for which you have to retaliate. I posted the information because I know we are all interested in learning everything we can about what the ATO thinks regarding HDTs. Surely you also found this information of benefit.

By the 90 views it got in the first hour and a half of posting the thread and nearly 1,000 views in 2 days I think all agree it was a worthwhile piece of information.

Hiya,

Julia, I am sorry that you have taken my post in that fashion. I did not feel under attack and certainly did not post "in retaliation". I cannot speak for Dale, but, I understand that his intentions were genuine, too.

Yes, that PBR is interesting. However, it relates to one particular trust deed and set of cirumstances, and as such, cannot be read to cover all HDT's. I suspect that this is the main point that is missing from most of these discussions.

As Dale mentioned in another thread, there may be no right or wrong answer here. I expect we will all find out soon enough what can be done, once Batten has a formal answer from the ATO.

And, as Alex said, those who know better than I could potentially be wrong... but, who am I to argue until then? I would love to be able to contribute more to this debate, but, I'm afraid that I am hopelessly out of my league...

Cheers

James.

 

[redwing]

I would love to be able to contribute more to this debate, but, I'm afraid that I am hopelessly out of my league...

Cheers

James.

I can only read in interest and contribute nil without sounding foolish then

I love the knowledge base of thisforum; many thanks to those who have posted and contributed...keep it coming

 

[julia]

James,

I think most people are aware that it is only one particular type of trust deed, but they are surprised that the deed contains all the things they thought were necessary and are struggling to find something more that may appease the ATO, hence the frenzy of discussion.

If you want to learn more about Hybrids there is some excellent discussions going on at the moment over quiet a few threads. It might not have the answers but it will certainly help you understand the answer when you see it.