Chan & Naylor - PIT trust

I don't believe that a HDT is GENERALLY suitable for passivley holding investment property for the benefit of one family group. It was not designed for this.

Yes, having units allows negative gearing by the unit holders (so can unit trusts).

Yes a HDT can redeem units and hold for the same discretionary beneficiairies without stamp duty on transfers (unique to HDT ?)

Yes *subsequently* the discretionary trust part can make capital distributions of depreciation deductions without CGT E4 problems to beneficiaires (so can a discretionary trust)

BUT look at the downside:

No asset protection while there are unit holders.

CGT on redemption of the units.

CGT E4 erosion of cost base for BOTH the Trustee's cost base and the unit holders' cost base whilst units are issued.

Deferred CGT for the Trustee on disposal of the asset, the old cost base is retained *less* any depreciation deductions allowed.

Weigh up the early interest deductions for the higher rate taxpayer against deferred double CGT (one to the higher rate taxpayer) and CGT E4 problems, plus any risk of creditors grabbing the unit holders' assets.

Also, trust borrowing to make a capital return (i.e. redeem the units) is not automatically deductible. That capital must have been used to derive the unit holder's assessable income AND not be part of any scheme etc or serve another dominant purpose.

Cheers,

Rob
 
I still can't see where the trust would get the money from when units are redeemed at market value before the asset is sold if there's a capital gain involved.

Unless amounts have been gifted to the trust, or simply not distributed some years, it only has funds that match the market value of its assets, which also matches the current value of the units. So if the units are redeemed, that's all its money gone, so where does it then get the funds to distribute the CG on sale of the asset?

GP
 
The refinancing principle started with partnerships: FCT v Roberts, FCT v Smith.

It is extended to companies in TR 95/25 but is silent on trusts.

Yet trusts were explicitly covered in the draft ruling TR 93/D38 !!!

Cheers,

Rob
 
Sorry, was that supposed to be an answer to my question?

The refinancing principle just shows that the interest would still be deductible after borrowing to redeem the units, but doesn't say anything that I can see about how the trust would come to have enough capital to both redeem the units and distribute the CG on sale of the asset, since it has to effectively pay part or possibly all of the CG twice.

If the trust borrows to redeem the units, then on subsequent sale of the asset the loan needs to be repaid, leaving just any further gain of the asset over the redemption price. However, the CG distribution needs to include all of that plus the CG component of the redemption value, which the trust doesn't have the funds to provide (except from possible beneficiary loans or gifts).

GP
 
Presumably the Trustee will hang onto the assets for the discretionary beneficiaries (presumably income splitting benefits), but borrow to finance the redemption.

However, with rental yields at best 5% and interest approaching 10% the trust would be lucky to get 50% LVR.

But don't forget the property is now positively geared and an embarrassment to the top tax rate unit holder who might guarantee the Trustee's loan or even make a loan or perhaps even gift to the trust to avoid it having to carry forward tax losses.

Not sure legally whether a HDT can now make a FTE and IEE to make the loss trust a beneficiary of another income producing discretionary trust to recoup the losses sooner. This is just getting further into the great leaps of faith we seem to be expected to make.

Basically, you are buying extra short term deductions of the negative geared amount (and longer term discretionary benefits) with a personal CGT liability at redemption plus a deferred CGT liability on the same amount for the Trustee, plus any non-deductible financial help you may need to give the Trustee to perform the redemption.

Ask a Financial Planner to do a discounted cash flow analysis of your possible scenarios and you will likely get an impersonation of a goldfish.

(And I don't mean a mere PS146 planner with their whopping 40 hours of study to equip themselves with the tools to advise you on your financial life !!! That is another subject I have issues with.)

Cheers,

Rob
 
Rob G. said:
(And I don't mean a mere PS146 planner with their whopping 40 hours of study to equip themselves with the tools to advise you on your financial life !!! That is another subject I have issues with.)
Click to expand...

Ha ha.. how true. Even a botanist gardener has to do 4 years at uni!
 
Rob

I thought that the 40 hours was for product familiarisation - you know, which products pay the best commissions. :D

Cheers
LynnH
 
Taxpayers Alert for Hybrid Turst

Read taxpayers Alert from ATO Was wondering if related to PIT trust (Hybrid Trust) with Units and Discretionary The Alert fromATO is as follows:


B]Taxpayer Alert TA 2008/3[/B] describes
a non-arm’s length arrangement under
which taxpayers use borrowed funds
to acquire an interest, such as units, in
a certain type of trust, which uses the
funds to purchase income-producing
property. The Tax Office says the
arrangement seeks to provide income
tax deductions to the taxpayers for all
of their interest payments and other
borrowing costs. The Tax Office view is
that the arrangement does not provide
a sufficient connection between the
expenditure and the production of
future income and/or capital gains,
which may be distributed to other
beneficiaries of the trust, who may have
a lower tax rate.
 
Chan & Naylor Property Investors Trust® (PIT®) achieves ATO Product Ruling

CHAN & NAYLOR "PROPERTY INVESTORS TRUST®" (PIT®) Achieves ATO Product Ruling PR2011/15

Difference between Product Ruling and Private Ruling
The Australian Taxation Office has released Product Ruling PR2011/15 which applies to new Property Investor Trust® Deeds (PIT®) established and executed after 27th July 2011 purchased from Chan & Naylor.

This is the first Product Ruling on individual trusts issued by the ATO and it is also the first time the ATO has given a Product Ruling on a trust product that is not centrally controlled by the sponsor or product supplier thereby giving the taxpayer more control.

This Product Ruling only applies to the Property Investor Trust® organised through Chan & Naylor and operated in accordance with the conditions approved by the ATO within this Product Ruling. A Product Ruling is an ATO blanket approval that is available to all taxpayers operating within the Product Ruling framework unlike a Private Ruling that only applies to a specific taxpayer and cannot be relied on by other taxpayers.
Taxpayers can now have certainty in relation to interest deductibility when using a Chan and Naylor PIT® Trust.

The PIT® however provides a lot more than just a trust that allows full interest deductibility. PIT® benefits include:

  1. There is no Vesting Date hence will not trigger capital gains tax and stamp duty because the trust does not cease and goes on forever. Most other Trust Deeds have a Vesting Date of 80 years which than triggers a capital gains tax and stamp duty for the beneficiaries and stops the property from being passed from generation to generation tax effectively.
  2. Will allow interest to be claimed as a tax deduction in the taxpayers/unit holders hands thus negative gearing can be claimed against an individual's wages. Unlike many other Hybrid Trusts where the interest may not be tax deductible.
  3. Provides asset protection as the property is held separate from the individual.
  4. Provides a land tax threshold in most States of Australia except NSW so that one can minimize and even eliminate land tax in some States
  5. Protects the property from the marriage breakdown of your children
  6. Designed specifically for property and eliminates the E4 problems with other Trusts which trigger larger capital gains tax when the property is sold.
  7. Allows control of the property to change hands such as the Trustee without triggering capital gains tax and stamp duty and enables the splitting of the assets of the Trust.
  8. Allows the beneficial or unit holders to change hands with no stamp duty in some states.
  9. If there is little or no gearing involved allows the flexibility to distribute the net rental to the lowest taxpayer.
  10. There is an ATO approved Product Ruling PR2011/15 giving you certainty of your tax deductible interest unlike most if not all other Trust Deeds.

The Chan & Naylor Team

Disclaimer: the above points are not an exhaustive explanation of the advantages of the “Property Investors Trust®” (PIT) ® and one should not rely on them without getting individual advice as the PIT may not be suitable to you in your circumstances.
Also the above points have not covered off on how the requirements of the ATO Product Ruling PR2011/15 apply to you.
Please note that the Product Ruling is only a ruling on the application of the law. It is in no way (either expressly or implied) a guarantee or endorsement of the commercial viability of the PIT®, of the soundness or otherwise of the PIT® as an investment or of the reasonableness or commerciality of any fees charged in connection with the PIT®.
 
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Aaron_C said:
Please explain how you are to bypass the rule against perpetuities? Only SA has abolished that rule.
Click to expand...

Simply set up the trust in SA.

However, what does this entail - trustee located in SA too? Does the trust property need to be located in SA? Does the Common Law rules against perpetuities apply?

Wait 80 years and see.
 
Couldn't you vary the date of the expiration of the trust by deed without resettling it?

Would it be cheaper to buy the deed from Chan & Naylor or do a Freedom of information application to the ATO to see the deed the ruling was made on and then do a knock off yourself changing a few bits to get around copyright considerations?

PS Don't say you have registered a trademark when you haven't. If I wanted to I could cause you much grief (as opposed to "Greif" which I am in the process of making a model of) by applying for a trademark and shutting down your use of the same and hitting you up for compo to boot.

If anyone on the forum wants to do this and makes a quid out of it please remember me fondly with a spotter's fee.
Edit: As Terry points out a trademark is registered under a similar name so you will probably get knocked back on the cyber squatting. No spotters fee for me. Seems they do know their IP (Intellectual Property)


Chan & Naylor I hope your knowledge of trusts and tax law is better than your IP knowledge.
 
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cu@thetop said:
Couldn't you vary the date of the expiration of the trust by deed without resettling it?

Would it be cheaper to buy the deed from Chan & Naylor or do a Freedom of information application to the ATO to see the deed the ruling was made on and then do a knock off yourself changing a few bits to get around copyright considerations?

PS Don't say you have registered a trademark when you haven't. If I wanted to I could cause you much grief (as opposed to "Greif" which I am in the process of making a model of) by applying for a trademark and shutting down your use of the same and hitting you up for compo to boot.

If anyone on the forum wants to do this and makes a quid out of it please remember me fondly with a spotter's fee.

Chan & Naylor I hope your knowledge of trusts and tax law is better than your IP knowledge.
Click to expand...

Hi CU.

"Property Investor Trust" is registered as a trademark to CNIP Pty Ltd.

Here is a link to the product ruling
http://law.ato.gov.au/atolaw/view.htm?docid="PRR/PR201115/NAT/ATO/00001"
 
Hi

You've posted a message on Somersoft. Well, two, but one was deleted as a duplicate.

The message you've posted is not much more than an ad for your company. If you don't wish to have that message also deleted please contribute to the forum.

It has only just been allowed to stay.
Click to expand...
We earlier received the above private message in response to our recent posts.

As you are all well aware there has been some considerable discussion and somewhat negative rhetoric in this forum concerning Chan & Naylor Property Investor Trust®. While these threads have laid dormant for some years now, the fact Chan & Naylor have since obtained a Product Ruling by the ATO (PR2011/15) means that many of the negative comments/posts on this forum prior to the 27th July 2011 are misleading, invalid and in some cases simply wrong - we seek to set the record straight by presenting the facts.

Our post was not intended to be spam or an advert in any way - this was a general, objective statement of facts to demystify the misconceptions and misinformation about the PIT, as well as to announce the ATO's Product Ruling - therefore all this and the benefits of the PIT highlighted in the post was with the express purpose to clarify and address the concerns and objections held about the PIT by the investment community active on this forum.

As for the duplicate posts, both were inserted in separate threads that were specific and directly related to the discussion of the Chan & Naylor Property Investor Trust®.


Kind regards,
Marco, on behalf of Chan & Naylor
 
Hi Marco

Thats ok, I see how you can see it that way, and in general im ok with your view.


My comment is my personal view, and not that of other mods or any other person or organisation that is present on this forum.

My primary beef stems from the comment below which casts doubt on ALL other trust deeds in existence. Unless C&N have assessed every other deed in existence, such a statement is not factual, is (IMO) an advertisement (at best), and detracts from the real message.

ta
rolf



There is an ATO approved Product Ruling PR2011/15 giving you certainty of your tax deductible interest unlike most if not all other Trust Deeds.
 
Whether you like Chan & Naylor or not to be fair to them they have been heavily criticised in the past for interest deductibility on their PIT and now they have gone to the effort of obtaining a product ruling (something I don't think anyone else has done) which has confirmed interest is deductible.

For these efforts and certainty for their clients they have to be commended.
 
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