HDT explanation for Dummies???

[Shadow]

Yes, but I'm not talking about selling the properties. I'm talking about the CGT aspects of the UNITS.

So am I! This is what I said...

I would not want to redeem the units if my plan was to always have a negatively geared portfolio, never sell, and live off equity.

And what about the ones that day it's not? (Such as the one Mry quoted?)

You mean the one about the poorly written deed that was used incorrectly?

And if you never redeem the units, all the tax gains (rent, etc) go to the unit holder (that would be you). So you lose the streaming aspect. What's the advantage of doing that?
Alex

I already listed them out above... asset protection, estate planning, no 80 year vesting, flexibility, land tax threshold etc...

And you get the negative gearing to help build your portfolio.

Cheers, Shadow.

 

[bene313]

Shadow

Mry was refering to the application of the units. Not what the deed says about the units. The deed should allow for right to capital on the units, but the application for the units will not. If the application did, you have lost your asset protection and may as well have gone with a regular unit trust.

Ben

 

[Shadow]

Hi Shadow,
Just curious, from your research, what else do you think makes the PIT better than a HDT?

Hi GSJ... the PIT is a HDT.

The main advantage over other HDTs is the 'no 80 year vesting' clause, and the fact that I think C&N are very knowledgeable in regards to property, so I prefer to use them as my accountants.

My understanding was that the PIT allowed discretionary distribution of rental income to lower taxed beneficiaries before you became positively geared and while SIU's were on issue...this was from the old PIT threads on the forum...I might be wrong...but is this still what C&N are saying???

No the PIT definitely does not allow this at all. I think there has been a lot of misunderstanding about this point on the forum.


Cheers, Shadow.

 

[JIT]

And you can't use the PIT for shares or anything else right?

And also, you have to always use C&N for your accounting as they have some trademark on it right?

Putting the 80 year thing aside (do you really care what happens after 80 years?), it seems more disadvantageous than a straight HDT???

And here's a quote from Chris Batten on the PIT thread re. discretionary income distribution:

"...
Dear Nick
I have seen the PIT Deed and can confirm that it is a hybrid discretionary trust that has the ability to direct income to discretionary beneficiaries that would otherwise go to Income Unitholders under the deeds you currently source. The problem is that the ATO MAYapportion the interest in line with IT2684 and Fletcher & Ors v. FC of T 91 ATC 4538 at 4957. The hybrid discretionary trust has many benefits for property investors and to push the limits whereby the arrangement becomes artificial and contrived is asking for trouble from the ATO..."

Taken from:

http://www.somersoft.com/forums/showthread.php?t=24292&highlight=property+investors+trust

So maybe C&N changed their mind on this, or Chris Batten got it wrong from the start???

GSJ

 

[bene313]

The main advantage over other HDTs is the 'no 80 year vesting' clause, and the fact that I think C&N are very knowledgeable in regards to property, so I prefer to use them as my accountants.

Hi Shadow

I haven't seen the PIT deed. But I'd be interested to know how having a longer vestation period than 80 years gets around the 'rule of perpetuities'.

Thanks

Ben

 

[Shadow]

Hi Shadow

I haven't seen the PIT deed. But I'd be interested to know how having a longer vestation period than 80 years gets around the 'rule of perpetuities'.

Thanks

Ben

Hi Ben,

Let's just say that this rule does not apply in all states of Australia.

Cheers, Shadow.

 

[Shadow]

And you can't use the PIT for shares or anything else right?

You could if you wanted to, but there would be no point, as it is designed for property. There are more appropriate deeds for other assets.

And also, you have to always use C&N for your accounting as they have some trademark on it right?

No you can still use any accountant for your accounting, but it would make more sense to use C&N, since they are the ones who understand the deed best, and they are pretty good accountants, and reasonably priced too in my opinion.

The name 'Property Investor Trust' is a trademark. This is just C&N's way to distinguish it from other HDTs. But it is just a HDT at the end of the day.

It seems more disadvantageous than a straight HDT???

And here's a quote from Chris Batten on the PIT thread re. discretionary income distribution:

"...
Dear Nick
I have seen the PIT Deed and can confirm that it is a hybrid discretionary trust that has the ability to direct income to discretionary beneficiaries that would otherwise go to Income Unitholders under the deeds you currently source. The problem is that the ATO MAYapportion the interest in line with IT2684 and Fletcher & Ors v. FC of T 91 ATC 4538 at 4957. The hybrid discretionary trust has many benefits for property investors and to push the limits whereby the arrangement becomes artificial and contrived is asking for trouble from the ATO..."

Taken from:

http://www.somersoft.com/forums/showthread.php?t=24292&highlight=property+investors+trust

So maybe C&N changed their mind on this, or Chris Batten got it wrong from the start???

GSJ

Yes I already read all this before I decided to get a PIT. Chris's statement is incorrect. Perhaps he 'accidentally' got it wrong from the start. Of course, Chris is a competitor to C&N. Before C&N came along, I guess Chris had the HDT market nicely wrapped up. Now he has a competitor. Do people sometimes say misleading things about their competitors... I think they do. But I would not like to accuse anybody of doing such a thing on a public forum, so I won't.

OK perhaps I'm starting to sound like a PIT salesman here, and that is not my intention. The PIT is really not much different to any other HDT in my opinion. My point is that I think HDTs are fine if used and written correctly.

Which is pretty much what Dale says in the recent API article.

Cheers, Shadow.

 

[Mry]

Why? There are enough PBRs out there that say HDTs are fine if used correctly.

You mean 28993? That's one. There's also 66298 that says they don't. Don't go selectively quoting thing to support your position and ignore the ones that don't.

What makes you think the deed says this? The deed does not say this.

The fact the deed doesn't assign rights to the units is bad. The rights to the units aren't enshrined in stone. There is a reason why a company establishes the rights to their shares in their company constitution.

Let's just say that this rule does not apply in all states of Australia.

Yes, SA which has a backdoor rule against perpetuities anyway. Not that it matters anyway.

 

[secret squirrel]

dont worry mry not a troll. might look like one though. am out making money but like a break now and then. mainly lawyers and accountants do work for me anyway. fight the councils and sales people find land. better their time than me.

thread is very busy. people keen on it i see. why people so passionate about the HDT. maybe it giving some people some loving. who knows if ato right. some pbrs say one thing. some say another. noone knows which deed pbr is for. maybe the deed is bad. like shadow say.

all must do what they like. some people hate smoking. i like it. u have to see whether u care or not. maybe same with hybrid. u dont like it. dont touch it. i give children 50 acres of land in dural 6 year ago. if not in trust then gee heaps of tax to pay. i pay nothing and kids have land. they subdivide and make money. good for them. not hybrid though.

 

[JIT]

Thanks Shadow, interesting stuff.

GSJ

 

[JIT]

...HDT. maybe it giving some people some loving. ..

Mate you are hilarious !

GSJ

 

[Shadow]

You mean 28993? That's one. There's also 66298 that says they don't. Don't go selectively quoting thing to support your position and ignore the ones that don't.

One PBR refers to a correct use of a well written deed. The other does not.

The fact the deed doesn't assign rights to the units is bad. The rights to the units aren't enshrined in stone. There is a reason why a company establishes the rights to their shares in their company constitution.

The deed does assign rights to units. Not sure I understand what you're saying here?

 

[Mry]

I don't know what deed you are reading, but I haven't read a hybrid deed yet that sets the right in stone. At best, the trustee can make up any units they like and assign rights as they see fit.

I guess this is an agree to disagree. You can take the position you like, but I will take the NTAA's position (National Tax and Accountant's Association) over the heartfelt beliefs of 'anonymous internet poster' any day of the week.

 

[secret squirrel]

maybe use unit trust not hybrid. then negative gear ok. maybe not good asset protection but make sure units geared. gear to offshore bank. creditors come. bank calls up funds. then person has to fight overseas jurisdiction. not advising to hide funds. ato onto that. but ok to have funds offshore and have private bank from development. make sure u declare income. lend funds and use units as equity. secured mortgage to offshore bank someone controls for you. could be fighting for money for years.

 

[Shadow]

I guess this is an agree to disagree. You can take the position you like, but I will take the NTAA's position (National Tax and Accountant's Association) over the heartfelt beliefs of 'anonymous internet poster' any day of the week.

Hi Mry,

What is the NTAA's position on the Property Investor Trust and MGS HDT when used correctly?

Yes, I suppose I am an 'anonymous internet poster', as are many on this forum. I am not trying to give financial or tax advice here. I am not trying to convince anybody to follow any particular path. I am simply talking about the trust that I use and why I use it. Everyone else can make up their own mind, as I have done, and you have done.

Cheers,

Shadow.

 

[austini]

... I guess this is an agree to disagree. You can take the position you like, but I will take the NTAA's position (National Tax and Accountant's Association) over the heartfelt beliefs of 'anonymous internet poster' any day of the week.

Hi again,

I may be wrong but from what I have heard the NTAA have been wrong in the past about their assumptions on particular tax matters. Are any of the best Tax barristers members or advistors to the NTAA? They're the ones who are most likely to be in the best position to understand the relevant law.

I'm not trying to have a go a anyone but just curious as to whether legal experts have been consulted by the NTAA to arrive at their conclusions.

Cheers - Gordon

 

[Mry]

Shadow, I wrote an article on hybrids and the link is in the second post to this thread. The NTAA links are here -

http://www.ntaa.com.au/media/associationatwork/usinghybridtrusts.html
and here
http://www.ntaa.com.au/media/associationatwork/yourassociationatworkapril2007.html

There is also an article at Lawcentral here
http://www.lawcentral.com.au/
Thomas Henn's Guide to Hybrids, Brett Davies Lawyers

The other thing about 66298 is that it may just have been the perfect deed, but what tripped the person applying for the deed was nothing in the deed itself, but the intent of the person applying for it. In the grey areas of tax law, intent is usually the deciding factor.

So in order for a person to successfully get negative gearing through a HDT, they need to have the goal of producing assessable income through a clear investment plan and nothing else at all. Number one.

Then the ATO has to assess that intent/goal giving consideration to -
1. The fact that the units do not seem to have a commercial explanation for incurring the interest because the amount paid does not represent market value for income units, but it does reflect the value for a certain asset purchased somewhere else. (The big problem)
2. The units may not have capital rights attached to them. (the definition of 'capital' here seems to be difficult to pin down)
3. Discretionary powers may be active while the units are issued. (not all deeds)
4. The units may be redeemed at cost. (not all deeds)
5. The trustee can decide to redeem the units at any time. (may show intent that the investment is not intended to run its full course - which 22893 was able to pass).
6. Tax anti avoidance provisions, part IVA.

If your intent passes these hurdles successfully with a perfect deed, you can negative gear!

 

[secret squirrel]

mry. very good to see your articles. fletcher case is interesting. what about not in a hybrid. if someone bought property in own name and negatively geared for one year and sold property would they be denied interest. maybe purpose not for long term. fletcher would say denied because intention was not to hold long term. what about having property in discretionary trust and getting loan in trust. purpose might be asset protection and estate planning as purpose as well as income. so would fletcher deny deduction. is interesting.

 

[Mry]

Fletcher's case wasn't about long term, it was about incurring a revenue loss now in the expectation of receiving a gain in the future. If someone purchases an investment property, owns it for a year and then sells it, it would be assumed (rightly) that the person purchased it because they expected to make a gain. It would be extremely difficult to prove otherwise. The end result is not what matters, it is the intent. But the ATO doesn't examine intent unless something doesn't make commercial sense.

TR 95/33 covers this issue. Check out the examples at the end.

 

[secret squirrel]

the ruling is interesting. it says 31. Their Honours then said (at 91 ATC 4958; 22 ATR 623):


'If, however, that consideration reveals that the disproportion between outgoing and relevant assessable income is essentially to be explained by reference to the independent pursuit of some other objective and that part only of the outgoing can be characterised by reference to the actual or expected production of assessable income, apportionment of the outgoing between the pursuit of assessable income and the pursuit of that other objective will be necessary.'

So if a discretionary trust has a negative gear property and u have purpose of asset protection and estate planning will interest deduction be apportioned ? the ruling says it will because u have another purpose. why do accountants claim not ?