final ruling on hybrids

Alright Alright......I'll chill out.

I am sourcing my own advice, which I am waiting for as well.....it would be madness to take advice solely from an internet forum.

I probably could be more patient, but I am used to the times when this forum used to have many high calibre professionals posting freely and posting often. Yes, there are still many around, but for whatever reason people are keeping things much closer to their chest these days.

The law changes and worse still the ATO can change their mind, it happened with negative gearing, it happened with Julia's DT concept and it has happened with HDT's. With anything thats a new-ish concept you are playing on the edges and run a real risk without a PBR or a clear decision from the High Court. Without either one of these things this is all just conversation.

However, it would be nice to hear from someone.
 
Hi Captain

My understanding is that the law has not changed at all in relation to HDTs and the claiming of interest. The interest can only be claimed if there is a commercial relationship between the borrowings and future income. Borrowing to buy units that would never produce a profit was never commercial.
 
thecaptain,

There was a person representing C&N on this forum. I had a gripe a year or so ago...and was PM'd by this person. I ignored their PM as I had already complained directly to C&N and written a letter to Ed.

I can't find the thread now but they also replied online.

My HDT has saved me $4000 in Land Tax/year in QLD. There is a benefit for you. But at what cost?

I am watching this thread, like you and I think we are all coming to the same conclusion: Keep it simple and get rid of the trusts. If you want advice, seek it professionally, not online.

However, there lies the problem. Who's advice do any of us trust? I don't trust the accountant down the road to know what he is doing? I have lost faith in C&N.

As you say, we have no control on new ATO rulings. One can be sure they will always change to benefit the ATO and not us!

PS: What change to NG?

Regards JO
 
Arkay said:
James,

No problem. I wasn't exactly in the best frame of mind when posting either and probably just shouldn't have :eek:

I wonder if the ATO understand just how much angst they create with a few tiny little pieces of paper? :rolleyes:

Cheers,

Arkay.
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Especially when people make their own interpretation and then don't trust their accountant's interpretation.:confused:

I'm confused to say the least.:eek:

Regards Jo
 
The NG changes brought about by the Hawke Labour government in 1987 (i may have the year wrong, I was only a whipper snapper back then).
 
julia said:
To me this means that if the deed has a possibility in it of some benefit going to another person then not all the interest is deductible. It is not as simple as owning 100% of the units its a matter of being entitled to 100% of the benefits created by the investment. And if you are entitled to 100% of the benefits of owning the investment then you have got to ask yourself why you set up a hybrid.
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I'm not disputing this Julia, but I'm curious to know if you have read an MGS Hybrid Trust deed? Assuming the deed does entitle the sole unit holder to 100% of the benefits (both income and capital gains) then TD 2009/17 would have no effect on the ability to claim 100% of the loan interest, right?

Asking myself why I set up a hybrid in the first place is a different story! We've all learnt a lot over the last few years and many of us probably wouldn't use a hybrid trust again but in some cases we're stuck with what we've got. Assuming the interest is 100% deductible (from above) is there any reason to change anything?

Even with the negative points raised in this thread such as reduced asset protection and the CGT on redemption of units, what difference does it make to a long-term buy and hold investor? If you are prepared to never redeem the income units there would be no advantage or disadvantage between a hybrid trust and holding the property in your own name. You can still negative gear, you still receive 100% of the income, and you still don't have asset protection.

Obviously by keeping the trust operating in hybrid mode you lose the advantage of being able to distribute future income to the discretionary beneficiaries, which was one of the original benefits of setting up a hybrid trust, but there's no disadvantage either (besides land tax maybe)...?


Terryw said:
My understanding is that the law has not changed at all in relation to HDTs and the claiming of interest. The interest can only be claimed if there is a commercial relationship between the borrowings and future income. Borrowing to buy units that would never produce a profit was never commercial.
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So this sounds like a good argument not to redeem the income units. If you keep the units long-term, once the property turns positive cashflow you are now producing a profit and therefore proving the commercial relationship?
 
Terryw said:
If I recall correctly, there was one accountant on this board that maintained, from the beginning too, that HDTs did not work the way they were marketed - and that was Julia.

Good work Julia!:)
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This suggestion also got quashed ;)

Buying 99% in Wife's name

HDT's ...always a red hot topic here :D

Thanks also for the Bantacs booklets Julia there is a trove of information there

I also love the way the ATO make 'retrospective' changes (not), fun for all the family
 
The reason I said that you have got to ask yourself why you entered into a HDT in the first place is because the ruling, in MHO, says that if the deed gives you the flexibility to return some benefit to someone else other than the unit holder (including the ability to redeem units at less than the market value of the underlying asset) then it is in trouble. And I suggest that you wouldn't have paid for a HDT unless you were led to believe something like this was available within the workings of the deed.
Point out to them that they told you it would do such and such and now the ATO's ruling points out, what has been the case since the early 90s, that if the deed has the ability to do such and such not all the interest is deductible. Then ask them which time they were wrong. When they originally told you that it would do such and such or now when they are telling you their deed will be ok if you only use it in a certain way. The ATO is looking at the abilities within the deed not the use now.
 
julia said:
The reason I said that you have got to ask yourself why you entered into a HDT in the first place is because the ruling, in MHO, says that if the deed gives you the flexibility to return some benefit to someone else other than the unit holder (including the ability to redeem units at less than the market value of the underlying asset) then it is in trouble. And I suggest that you wouldn't have paid for a HDT unless you were led to believe something like this was available within the workings of the deed.
Point out to them that they told you it would do such and such and now the ATO's ruling points out, what has been the case since the early 90s, that if the deed has the ability to do such and such not all the interest is deductible. Then ask them which time they were wrong. When they originally told you that it would do such and such or now when they are telling you their deed will be ok if you only use it in a certain way. The ATO is looking at the abilities within the deed not the use now.
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Julia...have you read an MGS deed or a C&N deed?
 
Here is a link to something by MGS on the benefits of its HDT:

prc.macquariegs.com.au/download.asp?file=documents/.../mgs/...pdf

The link to a posting by Chan & Naylor shows flexibility is one of the benefits claimed

http://www.somersoft.com/forums/showthread.php?t=41207&page=3

The issue is whether these advantages reduce tax deductions. Ultimately this is going to end up in courts where possibly they are allowed or disallowed by three judges although possibly six judges have decided otherwise

eg Court Case - Single Judge - Finds for the HDT
Full Court - Three Judges - Finds for the HDT
High Court - Five Judges - Three find against the HDT, Two find for

So three judges have found against and six for, but the three against have the final say.

So it is not reasonable to challenge Julia to comment on a specific trust deed unless you are her client and in that case the conversation should be in private and not on this forum.

I don't think Redwing is right in claiming this move by the ATO is retrospective. Rather, as Julia has noted what the ATO is doing is consistent with its approach (Julia says from the 90's) but I would think it is consistent with the ATO from the 80's. Yes you might say the ATO could have acted earlier but users of HDTS could have been proactive by seeking a PBR from the ATO.

Julia, along with the other accountants who generously post and have posted in the past on these forums, give us an opportunity to gain knowledge so that we can know some of the questions to ask our own advisers. Yes, some accountants are pro HDT. Yes, some accountants have concerns about HDTs. The mere fact that there is controversy shows the use of HDTS is likely to end up being litigated at some stage and as individuals we need then to take that risk into account in determining whether HDTS have a benefit to us. Julia, a few years ago, very generously pointed out a strategy that got substantial benefits to many investors without needing HDTs. Yes it is a pity that the 2008 Federal budget wiped that out.

What is obvious is that the more people who go along a particular path with tax, the more revenue is at risk and the more closely the ATO will examine it either with a view to applying existing law or seeking to change law. I remember 30 years ago when sales tax still existed that a friend's father had worked out something which saved his employer a substantial amount a month in that particular industry. The revenue authorities basically told him that as long as his company was the only one that did this it was not worth them changing the legislation.
 
Hi

If you have a HDT yourself, chances are you have an accountant that knows a great deal (or should) about them. You should be speaking to your accountant personally on their opinion (or their solicitors) of these trusts and the particular deeds that they use. If you do not trust their opinion and are seeking opinions elsewhere, perhaps you need to change accountants as you should be with one you can trust.

Alysha

www.gatherumgoss.com
 
Well......We have heard Julia's opinion and based on legal opinion I sought back in 2007, Julia is correct. The ATO are looking at what is possible under the terms of your trust deed, not how you currently use the trust..or so I have been told. So thanks Julia, as a tax professional for being prepared to comment on the forum.

It's probably not beneficial here to argue the merits of a particular deed from a particular provider, however it would be good to hear one of the Pro HDT accountants make a general comment as to the features of a trust deed that they believe are OK with the ATO and why they believe tihs to be the case i.e. lets hear the opposing view to Julia's view, because clearly there is one, but as yet no one seems prepared to come out and state otherwise.
 
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AVD you probably haven't had time to read through this thread?

Our accountants are giving us conflicting opinions, and the rulings are so ambiguous.

JRC, Kudos to you , I hope Julia can manage to respond. I'm sure she has better things to do!:)

Thanks for that thread Rockstar.

Regards Jo
 
HI Forumites,

The silence has been deafening for you because I am still recovering from RSI from the amount of previous posting I did on this topic regarding HDT's and the ATO's views on this over the last 18months.

Please take the time to research my previous posts on HDT's because nothing has changed in that time.

If you have researched my posts and still have questions then please talk to me.
 
Josko - quite the contrary, I wouldn't have posted had I not read the whole thread first.

If you want a personal opinion PM me, i'm happy to discuss where every word is not dissected. Accountants can only give you their opinion and interpretation on what our solicitors have told us, we cannot povide a legal opinion and we are not the ATO so can only say so much re any ruling and deeds.

Alysha

www.gatherumgoss.com
 
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AVD - as a person who practised in a profession for several decades I would not feel insulted by being questioned as to why my professional opinion on a particular matter was X. I would expect my adviser to be able to answer questions so that I am able to make an informed decision. I also expect, provided people have treated each other with courtesy and not taken debate as a personal attack, that an ongoing professional relationship can be maintained and indeed strengthened even if the client decides not to follow your advice provided they can see from your advice and responses that you are competent and capable

Having said that I appreciate and acknowledge that you are willing to correspond with people on PM concerning this issue and that your signature is not an anonymous one.

Further, just as I have said earlier today that it is unreasonable to expect Julia to comment on specific aspects of particular trust deeds in a public forum, I would also say it is unreasonable to expect advocates of particular HDTs to comment publicly on specifics of their particular form of HDT as possibly over the period of years that person has been advocating HDTS the form of wording has changed to cover perceived or specific threats. In each case it is up to clients to get advice from either their existing adviser or another adviser. Moreover, it is the specific words of an individual HDT that matter so just because one HDT may fall foul of the ATO ruling does not mean that all will. Wherever there is an opportunity to save tax, some people will push it as far as possible and it is inevitable that over a period of time some people will push the boundary and go too far. As the NSW Government knows the converse is true. Several years ago they pushed their excise taxes too far and went over the edge as a result of which the Federal Government had to impose taxes and then pay grants to the States.

And yes, we want our cake and to eat it as well. We do not want advisers who are overly cautious and restrict us from claiming all legitimate expenses. But if we're going near the edge of the cliff even though our guide/adviserr is confident of our safety we need to know what the risks and consequences are so that we can make an informed judgment.

Moreover, as a person who has dealt with legal opinions, it is amazing how often after the initial advice is that there is a strong case that the closer it gets to the hearing date that same barrister starts to see obstacles and problems that were not averted to earlier.

also remember that an eminent tax barrister Forsyth lost a court case in the early 80's concerning his personal tax deductions (from memory for a home office) so a barrister's opinion is not always infallible. I would also note that other eminent tax barristers consider the High Court's decision on Forsyth was too narrow.

further as i stated this morning you could have 6 judges in favour of a particular approach and three against, but because those three were the majority on the final court of appeal their view prevails. Alan Myers QC has an interesting article on the changes of interpretation by the High Court over the past 40-50 years http://www.law.unimelb.edu.au/taxgroup/AllanMyers07-04-05Web.pdf

Moreover, one of our rights in a democratic country is to be ruled by laws and not by whim, so the ATO is not the final decision maker through its rulings.
 
:rolleyes::rolleyes: Every time I see these HDT threads take the same path it only reinforces my view nowadays (which has come full circle over the years) that when it comes to negative gearing of property investing in one's own name is a beautiful thing. Admitably I'm conservative by nature but even with the latest ATO release it's still as clear as mud as to how this structure will hold up in the future with opionion amongst professional advisors continuing to be as divided as ever.

Cheers - Gordon
 
Did anyone make application for a Private Binding Ruling relating to their HDT?

In hindsight, wouldn't it have been of benefit to have the ATO assess your intended structure?

Does anyone intend to lay their structure on the table for the ATO to assess now that sh*t is hitting the fan?
 
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