HDT Account set up

[Chilli]

Hi all,
Would like your opinion on this set up please.. if you have experience in using HDT. I have asked my accountant as well and am still waiting for his response. All figures are examples to illustrate the points only.

My salary 40K
I have an IP under a HDT.
IP Rental income is 10K
IP Loan payment is 20K
rates+ PM+ maitenance 3K====> 23K total exp

I have:
1/An offset account for my PPOR loan. My salary goes there at the moment.
2./An off set a/c for IP loan
3./A LOC I intend to use to fund shortfalls of keeping the IP
4./ An off set account of the above LOC

I intend to:

• have my salary and IP rental income going into 1
• pay all IP loan interest and IP expenses from 3 , capitalise interest. So 3 is growing

Any hole please ?

At the end of year 1:
I have used 23K from the LOc to pay all IP expenses including loan interest. Plus the interest incurred by borowwing this 23K . Hence total debt in this LOC at end of year 1 is says 25K

On the tax return can I claim :a loss of 13 K being 23K -10K; or a loss of 15K being 25K-10K;
Will I have special income units issued on the amount of 23K or 25 K ? or 13K or 15 K ?
I intend to do the above until the balance in 1 = my PPOR mortgage. After that I will start to channel all income (my salary and IP rental income) to 4. Is this all within tax rules & regulations ?
Thank you

 

[bort]

you're mixing your own personal tax with that of the trust which as far as i know isn't how HDTs work ...

umm your special income units should be equivalent to the amount of the IP loan right - ie you take the loan out in your own name to buy units in the HDT which then uses those funds to buy the property.

therefore the interest on that part of the loan is probably deductible.

if you are paying expenses of the HDT out of the same loan in your name, i suspect you'd have to issue more units every time you paid an expense. (or lend to the trust at commercial rates)

in your personal tax return you need to claim the interest expense (20k assuming your loan is interest free) as a deduction in your personal tax return, as the loan is in your name and not the trust's

the trust tax return i would think should show the rental income less any property expenses (ie excluding loan interest which you claim in your own name). ie 10k less 3k

 

[Chilli]

Any one has used HDT - Please !! anyone ???

I am about to commit to this. Please comment, anyone, please.
I have read just about all threads/posts on SS re HDT and capitalised interest. I have asked my accountant, he has not replied , it has been more than one week.
Am I on the ridght track of using HDT and arranging the accounts ?
Any holes ?
Any better way ?

I will describe again hopefully making iy clearer.
IP is bought under a HDT
Loan to purchase this IP is under my name. SIUs are issued to me. The monthly interest payment is 2K.

I also have a large LOC under my name but split it into sub accounts (This LOC is another loan, nothing to do with the IP loan above):

1./LOC sub a/c number 1 is actual my PPOR loan, my salary goes straight to this to reduce PPOR debt.

2./ LOC sub a/c number 2: is used to pay for the IP loan interest 2K p/month. And the interest is capitalised so my total deb for the IP is growing by about 2.1K per month.​

I have a normal saving a/c used as "the HDT working a/c". Rental income 1.5K goes in here and IP expenses 0.5 K are paid from here. The monthly balance of this HDT a/c is about 1K (=rental income - expenses).

Each month a minute is done saying that the HDT actually distrubutes this 1K to me and deposits it to my saving a/c. I link my saving a/c as the offset a/c to my PPOR LOC Sub a/c number 1 .
I widthraw 0.4K from my saving a/c for private use. What left in my saving a/c is 0.6K. I deposit 0.6K to the LOC sub a/c number 2 , to reduce the debt incurred by keeping the IP.

Summary:

• Each month I make a loss (pay out 2.1K in total but only received 1K back) I can claim tax deductable on the amount of 2.1 - 1 = 1.1 K.
• Each month my debt in LOC sub a/c 2 grows by 1.5K (2.1K-0.6K ). But in return my cash flow is increased as I get to spend some of the rental income and also get 30% of 1.1 K back (assume 30% tax break).

 

[kph]

Ummmmm... its Sunday salsa.
Everyones at church !!

I would think you need to opinion from an accountant who is up to speed on the use of HDTs'.

Other accountants I have mentioned HDT's to, have come back with a glazed look, so I don't bother bringing it up anymore.

 

[Chilli]

Ummmmm... its Sunday salsa.
Everyones at church !!

hi K ! U r not !

 

[kph]

I get to work today ( lucky me!)

 

[bort]

i suspect that looks reasonable ... but you would need an accountant to confirm (and possibly the ATO).

also that 0.6k deposit into the LOC - i'm not sure you actually need to do that?

Each month a minute is done saying that the HDT actually distrubutes this 1K to me and deposits it to my saving a/c. I link my saving a/c as the offset a/c to my PPOR LOC Sub a/c number 1 .
I widthraw 0.4K from my saving a/c for private use. What left in my saving a/c is 0.6K. I deposit 0.6K to the LOC sub a/c number 2 , to reduce the debt incurred by keeping the IP.

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