ATO Taxpayer Alert on 'Hybrid Trusts'

[patb]

I bought a MGS HDT in Nov 2002. The Application For Special Income Units template that came with the deed includes the following statement under clause 2 Capital--"The holders of Special Income Units shall not have an entitlement to any part of the capital of the Trust Fund".

Under clause 3 Redemption, the Special Income Units holder is entitled to receive "by virtue of the redemption, an amount equal to the value of the units redeemed, calculated at the date of redemption --------".

Clause 3 seems to allow the trustee to include capital growth of the underlying asset in the calculation of unit value at redemption? The underlying asset could be property or, in the case of a UT/HDT combination, ordinary units in a unit trust.

 

[Bazza]

I bought a MGS HDT in Nov 2002. The Application For Special Income Units template that came with the deed includes the following statement under clause 2 Capital--"The holders of Special Income Units shall not have an entitlement to any part of the capital of the Trust Fund".

I think this refers to after the special units have been redeemed when the HDT becomes a Discretionary Trust.

Under clause 3 Redemption, the Special Income Units holder is entitled to receive "by virtue of the redemption, an amount equal to the value of the units redeemed, calculated at the date of redemption --------".

But, the special unit holders have entitlement to the capital growth whilst they hold the special units before it becomes a Discretionary Trust.

Clause 3 seems to allow the trustee to include capital growth of the underlying asset in the calculation of unit value at redemption? The underlying asset could be property or, in the case of a UT/HDT combination, ordinary units in a unit trust.

 

[Mry]

I think this refers to after the special units have been redeemed when the HDT becomes a Discretionary Trust.

I don't think so. Why would a unit application describe the rights of the beneficiaries when the units aren't on issue? It makes no sense.

You guys are on the right track. If you want to know how the ATO feel about your HDT, look at the deed and check the powers of the trustee when units are on issue, and look at the rights that those units have on the unit application form.

But, the special unit holders have entitlement to the capital growth whilst they hold the special units before it becomes a Discretionary Trust.

Do they? What does the deed / unit application say specifically? That's your authority on this issue. Don't rely on the words of others, go to the horse's mouth.

 

[Bazza]

Do they? What does the deed / unit application say specifically? That's your authority on this issue. Don't rely on the words of others, go to the horse's mouth.

I have read my MGS deed many times and still don't understand what it's saying So, I'll keep reading it until I do.

Cheers,

Bazza

 

[Mry]

I have read my MGS deed many times and still don't understand what it's saying So, I'll keep reading it until I do.

You aren't alone. I would read the deed with these questions in mind -

1. What rights does the trustee have to make distributions to others while units are on issue? Are there any restrictions?
2. What capital rights are specifically tied to the units with regards to the investment purchased in the trust from the subscription fees?
3. What is the value of the redemption of the units? What is it tied to?

If the deed doesn't answer these questions, you need to contact your provider.

 

[Terryw]

The Taxation Institute has a seminar on hybrid Trusts coming up.

Trusts & Estates Club: Hybrid Trusts

Thursday 22 May
1.5 CPD | Sydney

A panel discussion involving David Russell QC, Chris Catt of Counsel, together with Deputy Chief Tax Counsel Peter Walmsley and Tax Counsel Simon Haines from the ATO, will lead a lively discussion on the merits and concerns of hybrid trusts.

Click here to register

 

[Ebbie]

The Taxation Institute has a seminar on hybrid Trusts coming up.

Make sure you take notes!

I bought a MGS HDT in Nov 2002. The Application For Special Income Units template that came with the deed includes the following statement under clause 2 Capital--"The holders of Special Income Units shall not have an entitlement to any part of the capital of the Trust Fund".

Hi patb,

My 2002 MGS HDT says the same thing. The newer version says "Apart from their entitlement under the heading of REDEMPTION in this application, the holders of Special Income Units shall not have an entitlement to any part of the capital of the Trust Fund".

 

[Bazza]

Macquarie Group Services formal comment on HDT Taxpayer Alerts

I have a positive response from MGS. Macquarie Group Services expects to make a formal comment on Taxpayer Alerts TA 2008/3 and TA 2008/4 this week.

I'll keep you posted on the pending announcement.

Cheers,

Bazza

 

[patb]

I have a positive response from MGS. Macquarie Group Services expects to make a formal comment on Taxpayer Alerts TA 2008/3 and TA 2008/4 this week.

I'll keep you posted on the pending announcement.

Cheers,

Bazza

Bazza,
have you received any formal feedback yet from MGS?

 

[Bazza]

Bazza,
have you received any formal feedback yet from MGS?

No I haven't yet unfortunately. I contacted them again late last week but no response. I''ll try again today.

Cheers,

Bazza

 

[Bazza]

Good news for those of us who have a Macquarie Group Services Hybrid Discretionary Trust:

The provisions of MGS HDT's do not contain any of the features that the Commissioner has described as offensive in Taxpayer Alerts.

MGS have issued a response to the Tax Payer Alerts regarding their HDT's. If you are interested it may be best to request a copy from them directly http://www.macquariegs.com.au/web/contact.html

Cheers,

Bazza

 

[oracle]

Good news for those of us who have a Macquarie Group Services Hybrid Discretionary Trust:

The provisions of MGS HDT's do not contain any of the features that the Commissioner has described as offensive in Taxpayer Alerts.

MGS have issued a response to the Tax Payer Alerts regarding their HDT's. If you are interested it may be best to request a copy from them directly http://www.macquariegs.com.au/web/contact.html

Cheers,

Bazza

That's great news Bazza. I also use MGS HDT deed.

Cheers,
Oracle.

 

[the_captain]

I have contacted MGS and have received a reply. It's a big relief.

I have asked them to post a reply on the forum, as I suspect they are getting a few queries.

I have not heard back from them as yet, as there offices will be closed, so we will have to wait and see

 

[Pat]

This is excellent news for those who have kept the faith through a diifficult time for owners of HDT's prepared by MGS. It goes to show what a professional outfit MGS are.

 

[Francesco]

Good to know common sense prevails in the ATO and HDT deeds are still sound. Unfortunately, the salary sacrifice strategy promoted by some as an alternative to getting the benefits available to HDT has been closed decisively in the Budget.

 

[Terryw]

Good news for those of us who have a Macquarie Group Services Hybrid Discretionary Trust:

The provisions of MGS HDT's do not contain any of the features that the Commissioner has described as offensive in Taxpayer Alerts.

MGS have issued a response to the Tax Payer Alerts regarding their HDT's. If you are interested it may be best to request a copy from them directly http://www.macquariegs.com.au/web/contact.html

Cheers,

Bazza

Here is a copy of the MGS response.

 

[GreatPig]

That sounds good, but does it relate to the older MGS deeds or only the more recent modified ones (I gather there have been some changes to the deeds recently relating to these issues)?

Also, the key point about double CGT where units are redeemed before the asset is sold is left vague, with the comment:

CGT events occur when the units are redeemed as well as when the underlying asset is disposed of. To avoid this problem, seek assistance from a professional advisor.

Is this implying there is a way to avoid the double CGT, other than by selling the asset first, or is the professional advisor just going to have to say sell then redeem?

In that scenario, if you wanted to redeem the units without selling the asset or getting double CGT, could the trust effectively just sell it to itself to realise the CGT immediately prior to redeeming the units? Or is it perhaps possible to somehow voluntarily trigger a CGT event without actually selling the asset? I'd presume stamp duty would then be payable though.

GP

 

[austini]

That sounds good, but does it relate to the older MGS deeds or only the more recent modified ones (I gather there have been some changes to the deeds recently relating to these issues)?... GP

Yes, good question as many of us set up HDTs earlier on before all the controvery started to arise.

Cheers - Gordon

 

[Georges]

MGS = Chris Batten?

 

[Rob G.]

It even mentions the possible "double incidence of CGT" as a potential problem that should be considered in your financial plan.

Cheers,

Rob