Another Blow to Hybrids

[JamesGG]

Hiya,

Julia, I am aware of the other threads, and, have kept a close eye on these as part of my profession as well as from a personal interest. However, many posts seem to be empty rhetoric, with much barking and chasing of tails. A lot of wasted time and energy, not to mention emotion, is being poured into these threads whilst a firm answer is - hopefully - just around the corner.

As I've mentioned on many an occassion, I am no expert. However, my understanding from reading various deeds and rulings is that the ones being knocked back have too much of a discretionary capability even while units are on issue. This obviously disrupts the nexus for a right to income, and thus an apportionment of interest is necessary, if it's claimable at all.

Again, I will be keenly awaiting the news from Chris - whom I note is still happy and willing to sell his MGS deeds.

Cheers

James.

 

[DaleGG]

Hi

Naturally, I have given the issue of HDT’s a lot of thought of late and especially in light of some of the recent private rulings and discussions on this forum.

Before, I comment too far, please understand that:

1. I personally use HDT’s to own some of my IP’s and in doing so; I too have issued Special Income Units to take advantage of the negative gearing aspects of the trust. Therefore, I personally have a problem if this turns as sour as some would have us believe.

2. Secondly, I have publicly supported the HDT concept for a number of years now and so I am obviously biased in my thoughts and this bias needs to be taken into consideration with anything else that I say on the topic…..as I am sure that it is already.

Now, having said that, my thoughts are:

As a generalisation, we seem to be approaching this issue on a “one size fits all” basis. That is, either all HDT’s will fail the Tax Office scrutiny; or, all HDT’s will pass the Tax Office scrutiny.

As a forum we seem to do this regardless of the actual wording of the trust deed involved; how the individual accountants understand the tax law and/or the trust law and of the trust deed involved.

Clearly, that is a crucial mistake in tax law as a simple basis for all tax issues is to look first at the individual facts and circumstances in hand.

Obviously, we are all waiting to see what the Tax Office do when they finalise their discussions with Chris Batten and Chris Balalovski and any comments I make now need to be read with this in mind.

I have no doubt that as soon as Chris Batten knows something more certain and worth sharing, that he will indeed share it. In the meantime, suggesting that he is being unfair or withholding information is close to libel and quite unhelpful to an intelligent debate on the matter. Moreover, we are wasting time, energy and emotions unnecessarily whereas Chris is just waiting and working quietly in the background towards a resolution of this issue with the Tax Office.

So, for what it is worth and with all the preceding comments in mind, what I personally believe that we will see is that:

• Those of us who believe that the HDT concept will fail will be proven right; and
• Those of us who believe that the HDT concept will work will be proven right.

How?

Simply, because of the way that the individual trust deeds are written and used.

So, whilst I know it is frustrating to do so, we are all best to wait and see what comes out of the discussions between Chris and the Tax Office.

I hope that this helps some

Dale

 

[julia]

Dale,
What concerns us is the HDT in the ATO ruling seemed to have all the good clauses discussed on this forum. Is there anything not in the clauses listed in the ruling that you think may save a HDT?

 

[DaleGG]

Hi Julia

At the risk of being unhelpful.....can we please wait for the tax office to finish their job rather than us speculate on "what if's" and "maybe's" that serve no purpose other than to waste time, energy, emotions and to spook people.

As Chris Batten has done, I promise to update the forum the minute that we have something concrete...either way.

We have been promised definitive answers a couple of times only for the tax office to bault at the last minute. This frustrates me (and the others) every bit as much as you and probably a great deal more so.

Dale

Dale,
What concerns us is the HDT in the ATO ruling seemed to have all the good clauses discussed on this forum. Is there anything not in the clauses listed in the ruling that you think may save a HDT?

 

[Mry]

I attended a recent NTAA seminar where hybrids were discussed in detail. As a result of concerns raised by members, the NTAA released to the public their seminar notes on hybrids. Those who wish to look at the NTAA's opinion on hybrids can have a look at this link.

They are quite technical, but very good.

I have also heard around town that some lawyers are issuing deeds which make the special income unitholder be the person to decide when the assets in the trusts are sold, and when the units can be redeemed. This is to get around the negative gearing issue, but I also heard that no one is brave enough to submit to a private ruling on this yet.

 

[austini]

Let's hope Chris B. gets a more definitive answer from ATO sooner rather than later. Certainly some of the more recent information being presented here isn't exactly painting a very optimistic picture!

Cheers - Gordon

 

[davea]

I attended a recent NTAA seminar where hybrids were discussed in detail. As a result of concerns raised by members, the NTAA released to the public their seminar notes on hybrids. Those who wish to look at the NTAA's opinion on hybrids can have a look at this link.

They are quite technical, but very good.

i went through and read it, understood most of it (except the last part)...

interesting about the employee v employer asset protection line...

 

[Mry]

Asset protection is a double edged sword.

You can raise the issue of asset protection being a reason for setting up a HDT and attempt to avoid Part IVA. If the argument fails and Part IVA succeeds, you lose. If the argument succeeds, the ATO states that asset protection is for private purposes and you still lose.

 

[julia]

Hi Mry,

Where you at that Seminar in March? I was the women down the front in red that sent that HDT solicitor scurrying when I mentioned Fletchers case and TR 95/33. I never did get the bottle of wine for the best question.

Anyway I was just reading TR 2007/D2 on all these agri investment schemes. This ruling is pretty radical and the ATO say they will follow it up with test cases but I think the whole industry will die before that happens becuase of the severe consiquences if the ATO wins ie no deduction for initial contribution all income fully taxable and initial contribution is reduced to a carried forward capital loss when the scheme is finished.

My point is we haven't even got to the draft ruling stage with HDTs yet. I bet they will put out a brutal draft and at best fund test cases but by the time these cases get through the courts we will be retired and many will abandon their HDTS due to uncertainty.

Just think of the consiquences if the HDT fails. All those tax losses completely loss because even if the ATO allows them to go over to the trust being a Hybrid it cannot make a family trust election. Then the stamp duty to move the property out of the trust and costs of winding up or running the trust or the cost of holding the trust for all all those years to wait and see if you will one day be entitled to claim the losses.

 

[DaleGG]

Hi

This speculation is most unprofessional and most unhelpful.

As you should know, the tax system works quite slowly at times and the absence of a reply from Chris Batten does not mean anything bad at all.

In fact, I believe that everythng is progressing quite nicely.

As soon as Chris has something definitive, he will inform all of us directly, or, through Nick, Mike or myself.

In the meantime, perhaps we would all be wise to simply wait; and continue to do our own due dilligence, if appropriate.

Dale

 

[sailor]

My thanks to the experts who have provided an interesting and informative debate/opinion on the issue of HDT's. Although I have an HDT, I'm definitely no expert, and learning as I go. So I'm keeping up with this thread with keen interest! Many thanks to you all.

 

[julia]

Dale -
In the meantime, perhaps we would all be wise to simply wait; and continue to do our own due dilligence, if appropriate.

Perhaps this forum is the ideal place to do our due dilligence, particularly that excellent link from Mry to the NTAA web site. Hybrids have always been a hot topic here why should we stop discussing them now?

 

[Mry]

Where you at that Seminar in March? I was the women down the front in red that sent that HDT solicitor scurrying when I mentioned Fletchers case and TR 95/33. I never did get the bottle of wine for the best question.

I was at the Hilton seminars on April 3-4 in Brisbane. Was it Matthew Burgess who was the HDT solicitor? I won the bottle last year with my questions about the gift and loan back strategy. There were only three questions asked of him about hybrids, the only woman who asked him a question was an accountant who had been approached by a real estate agent who had set up her client's purchases in hybrids and asked her if she would do the returns for her clients, because the agent was getting knockbacks from other accounting firms and she was concerned about liability.

 

[see_change]

I think it's important to have open and frank discussion about any contentious issue that relates to property investing. Otherwise are we spending time here ?

That way every one is aware of potential issues of concern .

Some people are happy to push things to the limits , whereas other people will deliberately avoid areas where there are possible concerns .

Cliff

 

[DaleGG]

Hi Julia

There has been available an excellent tool for research for some time now...a telephone. I am sure that if you were to ring Chris Batten and talk to him then you would have information and facts and not just speculation.

Chris Batten has been in extensive discussions with the tax office and legal counsel. He understands this topic more than most.

The NTAA link is a good one for some information, but, this speculation is clearly unprofessional and unhelpful.

Dale

Perhaps this forum is the ideal place to do our due dilligence, particularly that excellent link from Mry to the NTAA web site. Hybrids have always been a hot topic here why should we stop discussing them now?

 

[DaleGG]

Hi Cliff

I totally agree that open discussions are important.

My annoyance is that the contentiousness of this issue has been discussed and debated ad nauseum. The facts have been laid bare and the expert (Chris Batten) has asked us for patience whilst real answers are sought from the tax office and legal counsel.

So, speculating about what might pr might not happen presupposes that the HDT will fail when that is like saying that all medicines are bad for you.....yes, some are bad and yes, some do fail and yes, some should not be used for some purposes. That has never been refuted. However, it is not a one size fits all situation and to suggest that it is shows a clear lack of understanding of tax law, trust law and professionalism.

Some medicines do work and are appropriate when used as instructed.

Like everyone, I would love clear answers, too. I have shared what I know as soon as I have permission to do so or have anything new worth sharing.


Dale

I think it's important to have open and frank discussion about any contentious issue that relates to property investing. Otherwise are we spending time here ?

That way every one is aware of potential issues of concern .

Some people are happy to push things to the limits , whereas other people will deliberately avoid areas where there are possible concerns .

Cliff

 

[see_change]

Hi Cliff

My annoyance is that the contentiousness of this issue has been discussed and debated ad nauseum. The facts have been laid bare and the expert (Chris Batten) has asked us for patience whilst real answers are sought from the tax office and legal counsel.

.....

Some medicines do work and are appropriate when used as instructed.

Like everyone, I would love clear answers, too. I have shared what I know as soon as I have permission to do so or have anything new worth sharing.


Dale

Yes, but while it still fails to go away at this stage as do most contentious issues on the forum .

Was it inappropriate for Julie to post the link that started this thread ?

Yes , some medicines do work when they are used appropriately and some are dangerous if used inappropriatly .

There were two good medications called Adifax and Ponderax which were effective for weight loss ( best to date) . They were dangerous when used in combination with another weight loss medication called Duromine ( one medication that is potentially addictive , and I don't prescribe ...) . The drug company issued warnings about this but some doctors deliberately ignored the warnings due the amount of weight their patients were loosing and the Pharmaceutical company pulled them off the market as they were concerned about litigation ......

I'll react to peoples concerns about medications that are being raised in the media , such as stilnox ( a great medication for the vast majority of people who take it , and non addictive as opposed to all of the other alternatives ) I'll discuss all the pro's and cons so my patients can make an informed decision. If I'm not sure I'll tell them.

Cliff

 

[DaleGG]

Hi Cliff

Thanks for that; as always you make good points and I appreciate you doing so here, too.

My frustration and disappointment was not from this thread starting, but, from the comments made within the last 24 hours:

Julia wrote:

My point is we haven't even got to the draft ruling stage with HDTs yet. I bet they will put out a brutal draft and at best fund test cases but by the time these cases get through the courts we will be retired and many will abandon their HDTS due to uncertainty.

Just think of the consiquences if the HDT fails. All those tax losses completely loss because even if the ATO allows them to go over to the trust being a Hybrid it cannot make a family trust election. Then the stamp duty to move the property out of the trust and costs of winding up or running the trust or the cost of holding the trust for all all those years to wait and see if you will one day be entitled to claim the losses.

Yes, there is some uncertainty surrounding some HDT's...but, not all. And, speculating about something in this way is inappropriate.

If we compare Julia's speculation and fear mongering with MRY's tactful comments today re the PIT and the issue regarding 80 year life times, we see a marked difference.

Dale

Yes, but while it still fails to go away at this stage as do most contentious issues on the forum .

Was it inappropriate for Julie to post the link that started this thread ?
Cliff

 

[monoply]

I agree. Research and facts are good, but speculation is pointless until the ATO have their little say.

Once the ATO make a ruling, it will be business as usual, or there will be solutions to make it business as usual.

Cheers
mono

 

[julia]

My comments are no more speculative than Dale’s statement that some will fail (maybe even “fear mongering”) and some will pass or that Chris will have a clear answer very soon.

So Dale please stop your very unprofessional and unhelpful personal criticism. I would like to carry on with this very relevant discussion.

Does anyone think their trust deed is not caught by the comments made by the NTAA? Or does anyone disagree with what the NTAA have said?

When the ATO do make a statement it will only be a draft so not binding on them. And it is not speculation or fear mongering to state that it will be a long time before they will make a binding statement, that is the way draft rulings work. While every bit of information Chris can give us is much appreciated it will be no more definitive than the draft ruling. I have seen draft rulings twist and change for years MT 2006/1 is a classic example. And after that a test case may come along and change everything.
So let’s start talking about it right now. What should people starting out now do? If they are about to sign a contract on a little bargain they can’t wait.

Even Dale has said some will fail. What are the ramifications for those that fail? The problems associated with winding them down. Could this affect the market place? Yes it is scary but it needs to be addressed.

Ultimately it will be a judge or parliament that has the final say and that is years away.