Why should'nt they comment on cookie cut trust deeds that were sold in bulk?
I've tried to read and comprehend everything that's been written on HDTs. I don't have one, but if there were sufficient benefits, I may be interested in using one in future. I just like to know what my options are, and be a well-informed consumer. 
With that declaration of non-interest out of the way, I would very much appreciate it if any of the professionals who are not disturbed by the latest ATO TD could please clarify:
1) Is this because the Trust deeds that you advocate allocate 100% of units to Paul?
2) If this is the case, then the only advantage that I can see in using this structure over investing in one's own name is that one has the option, if one is willing to pay redemption CGT, for units to be redeemed and gain flexibility of distributing income once the asset becomes profitable. If that's the case, couldn't you achieve the same result by investing in one's own name initially, then selling to a standard DT once the property becomes profitable? (Except perhaps this latter would trigger stamp duty, whereas redemption may not?)
3) If I've completely missed the point, and to get to the only question that matters: why would the ability to negatively gear in a non-asset-protected structure offer any benefit over investing in one's own name?
With that declaration of non-interest out of the way, I would very much appreciate it if any of the professionals who are not disturbed by the latest ATO TD could please clarify:
1) Is this because the Trust deeds that you advocate allocate 100% of units to Paul?
2) If this is the case, then the only advantage that I can see in using this structure over investing in one's own name is that one has the option, if one is willing to pay redemption CGT, for units to be redeemed and gain flexibility of distributing income once the asset becomes profitable. If that's the case, couldn't you achieve the same result by investing in one's own name initially, then selling to a standard DT once the property becomes profitable? (Except perhaps this latter would trigger stamp duty, whereas redemption may not?
)3) If I've completely missed the point, and to get to the only question that matters: why would the ability to negatively gear in a non-asset-protected structure offer any benefit over investing in one's own name?
I have never advocated HDTs for related party investors.
However, ONE advantage claimed is that when the property becomes positively geared then you can avoid stamp duty by the Trustee redeeming units and holding the property for discretionary beneficiaries. No transfer of legal title happens.
You need to do a DCF analysis to see if the incidence of CGT, i.e. once to the unit holder for redemption whilst the Trustee retains the original cost base to pay it again later, outweighs the stamp duty savings.
Cheers,
Rob
However, ONE advantage claimed is that when the property becomes positively geared then you can avoid stamp duty by the Trustee redeeming units and holding the property for discretionary beneficiaries. No transfer of legal title happens.
You need to do a DCF analysis to see if the incidence of CGT, i.e. once to the unit holder for redemption whilst the Trustee retains the original cost base to pay it again later, outweighs the stamp duty savings.
Cheers,
Rob
Thank you JRC and Ozpert for your contributions and balance.
I would just like to add something for Accountants here. I have read a few HDT deeds but as I am not a solicitor should not comment on them, I thought. One in particular to me seemed to fall foul of PBR 65710. So I rang the solicitor involved and he agreed that ruling referred to his deed. During the imformative and objective conversation it became apparent to me he was still selling the deed. So I asked are you still putting people into this deed even though you are aware of the PBR? He said oh yes, it is up to the accountant to decide if it will stand for tax purposes.
Note in PBR 65710 the ATO ruled the trust was discretionary so none of the interest was deductible to the unit holder.
I would just like to add something for Accountants here. I have read a few HDT deeds but as I am not a solicitor should not comment on them, I thought. One in particular to me seemed to fall foul of PBR 65710. So I rang the solicitor involved and he agreed that ruling referred to his deed. During the imformative and objective conversation it became apparent to me he was still selling the deed. So I asked are you still putting people into this deed even though you are aware of the PBR? He said oh yes, it is up to the accountant to decide if it will stand for tax purposes.
Note in PBR 65710 the ATO ruled the trust was discretionary so none of the interest was deductible to the unit holder.
What a great guy. This solicitor must have very happy clients.
Hi Ajax, a bit of a late response to your post but hasn't the recent Bamford case settled this point:
Subject to any appeal to the High Court, Bamford appears to have settled that income of a trust means ‘income ascertained by the trustee according to appropriate accounting principles and the relevant trust instrument and in accordance with the ordinary concept of income’ contrary to the ATO’s view.
Apparently if the trust deed provides the necessary powers the trustee can re-characterise a capital gain as ‘income of the trust estate’.
Hi Rob, is this a fact or yet to be tested in the courts?
Let's say the unit holder gets sued and loses their income units. The unit holder can't force the trustee to redeem the units so the property is still safely tucked away in the trust. The new owner of the units is entitled to a share of the income attached to those units. No doubt the trustee could find a way to reduce the net income of the trust? It wouldn't be a good situation to be in, and correct me if I'm wrong, but there still seems to be some form of asset protection for hybrid trusts (though not ideal).
Regards, Ebbie.
Interesting. This is something I'll have to research because I haven't heard of it before. The only thing I've seen is in my trust deed where it says:
"The Trustee shall not be obliged to redeem any Special Units and the Trustee shall not be required to give any reason for any refusal to redeem."
Not suggesting that at all. lf you have lost all your units then interest deductibility might not be a big issue since you'd no longer be able to show you were receiving an income anyway?
I was just saying there may be some additional but legitimate expenses the trustee could use to reduce the trusts distributable income.
I'm not in the accounting (or legal) professions, but that 'wows' me! I would guess that some accountants obtaining such documents from solicitors don't have the specialist knowledge to correctly handle such matters. I am REALLY surprised by the solicitor's position.
How would you expect an accountant to handle such situations? Do accountants dealing in trusts likely have sufficient knowledge to identify the risk and question it? Do they routinely seek second opinions? Do they just blindly accept the solicitor's advice? (I can imagine some accountants would, and it seems not unreasonable to me.) Do they routinely seek PBRs? (I guess that might be good practice. But is it practical?) Or ...?
The GFC has shown that managed funds (mostly unit trusts) can freeze the right of unit holders to redemption/withdrawal of units. Won't this also apply to HDT and is a device for asset protection to not disadvantage other unit holders in the HDT? Of course as mentioned a HDT with only one unit holder is a slightly different situation but the right of the trustee to not disadvantage the trust for the interest of beneficiaries still apply, unless BENEFICIARIES = UNIT HOLDERS. Then, asset security is tenuous? Just thinking out loud.
