SS,
Shadow,
For a HDT to provide all the benefits you list it would have to go from being a unit trust to a discretionary trust and run the guantlet of all the issues we have discussed.
Hi Julia... here we go again...
What issues? I've already explained there are no issues when a HDT is used correctly!
So it is not satisfactory to say use a HDT to make sure you have all the options covered. In some cases the options aren't covered as well as other methods.
It's not about having all the options covered as well as other methods. Other methods work for some of the options, but not all of the options. The HDT covers ALL of the options, and although it may not cover every single specific option as well as that specific option may be covered using another method, it does at least cover them all quite adequately.
And in other cases both sets of objectives cannot be achieved at the same time ie negative gearing and flexability. You cannot get to the stage of flexibility after negative gearing without crossing the CGT problem.
Why do you keep saying CGT is a 'problem'. CGT is a fact of life for all investors. CGT is incurred whether a property is sold individually, or out of a discretionary trust. You seem to imply that CGT only affects HDTs?
Flexibility does not mean doing everything at the same time. It means having the option to take different alternatives when the need arises. A HDT is inherently flexible. When the time comes, I can choose to...
a) Keep the Units, and let the portfolio become positive cash flow, streaming income to the Unit holder. The structure now works the same as if the properties had been owned in individual names.
b) Redeem the Units at Market Value, pay the GCT (CGT is not an issue, because I've already saved more in negative gearing up to that point). The structure now works the same as a Discretionary Trust.
c) Keep the units, buy more property and continue to run a negatively geared portfolio, living off equity. This way I get the best of both worlds... keep the negative gearing and no CGT event. Of course my plan would always be to eventually make a profit, if questioned by the ATO.
At the same time as I have these options, I also achieve the other benefits of holding assets in a trust structure (I won't list these out again, already discussed earlier).
Depending on your circumstances there is another method of having both negative gearing and flexibility at the same time ie salary sacrificing the rental property expenses.
Your other method does not suit everybody, the same way that the HDT does not suit everybody.
Your other method works OK for couples (not singles) who are comfortable with involving their employer in their investing plans, and the employers must also be agreeable to this plan.
HDT has a specific use for certain individuals in a particular circumstance, as does your salary sacrifice method.
Just as there are other methods of achieving the other benefits listed. True it does depend on what you are looking for but there is always another option than using a HDT so why go on the ATO radar.
There are other methods of achieving SOME of the benefits listed.
There is no other way to achieve ALL of the benefits under one structure.
Talking about ATO radar is meaningless. No tax is avoided when a HDT is used correctly. HDTs are not about tax avoidance, they are about holding your assets in a flexible trust structure with all the benefits that go along with that, while at the same time achieving the benefit of negative gearing that is rightfully allowed for all investors.
Cheers, Shadow.
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