HDT Passes ATO Audit. A Plus !!

[coastymike]

As we all know myself and a few other accountants have been using MGS HDT deeds for some time as we have felt confident in them passing an ATO audit.

House of Wealth have just had an audit done on a HDT, with the amendments, and the audit has been completed without any issues.

http://houseofwealth.com.au/tax-and-accounting/hybrid-trust-passes-audit/

 

[MichaelW]

Nice!

I had my MGS HDT deed updated recently so am pretty pleased to see it pass this test. Not a PBR, but still good to see the precedent.

Can get on with life comfortable that my returns are likely to remain intact.

Cheers,

 

[capitalist]

I hope the deed that passed the audit is the same one that Dale was selling or maybe i should ask to have it updated.

 

[redwing]

The link didn't work for me Coasty??

 

[JamesGG]

The link didn't work for me Coasty??

I wasn't sure whether I should post an update here, in case people thought I was only fishing for business, but looks like Coasty has forced my hand.

I've noticed that since switching our hosting a few weeks ago, direct links to blog posts seem to return error messages more often than not. No idea why but the tech people are onto it... hopefully resolved soon.

In the meantime, for those interested and to avoid sending everyone to our website, the body of the post looks liked this;

We recently had the tax office select one of our clients for audit, requesting evidence that their deductions against trust income were in fact legitimate claims.


To paint the story for you; this client received distributions of approx $50,000 from their hybrid trust in 2011FY, relating to their special income unit investments into that entity. Against that $50k of income, the client claimed approx $130k worth of deductions for interest and borrowing costs, leaving him with negative gearing to the tune of around $80,000.

Coupled with the client’s other deductions, this resulted in a refund of around $48k which, naturally, the tax office were a little reluctant to release too quickly.

So, we were instructed to provide evidence of the expenses incurred along with the trust deed and subsequent amendments. Those of you playing at home will remember the update process that we began back in May this year to bring all hybrid trust deeds into line with current tax office views. Having done so, the tax office had no argument against the deductions and have just released the refund in full AND will also pay interest backdated to when the return was originally lodged.

The key issue in this case was the deed and the variation of same; the tax office didn't ask for evidence of interest deductions until very late in the game. And even then, they did not seek to verify the other borrowing costs, that the loans were used to buy property, nor that the trust distribution figure was correct.

I hope the deed that passed the audit is the same one that Dale was selling or maybe i should ask to have it updated.

If you set the deed up with Dad, then it would have been an MGS deed. MGS have recommended the update so it may be worth speaking to either your current accountant, or MGS directly, to find out what you need to do.

 

[cu@thetop]

Wots a MGS deed?

 

[soyabean]

I have discussed with my accountant re finding out the update required however he did not seem to know what amendment needs to be made or was keen to find our (I did purchase the MGS HDT from CB via my accountant).
For those who have had their deeds modified upon recerving the letter from CB last May could you tell me who you approached to have the amendment done ? you lawyer ? your accountant or MGS directly ? Was it a lengthy and costly change ?
Much appreciated.
Soy

 

[Propertunity]

Wots a MGS deed?

Macquarie Group Services

 

[JIT]

I used MGS directly to update my deed, and later did a re-finance of a HDT property to Westpac with no major dramas, they just needed a letter from an accountant explaining why the trust structure was used and the benefits to the borrower and the trustee.

Also in the process of doing a re-finance with NAB with no issues raised.

Anyone having any issues with HDT finance?

 

[soyabean]

Hi JIT,
I have been with NAB for nearly 10 years now and did not have any issue with borrowing as HDT (this was about 4 years ago).

 

[Ian (WA)]

"Anyone having any issues with HDT finance?"

Yep, Suncorp.....cannot spell HDT, let alone understand how it works.

We have approached them on two separate occasions for equity top ups on properties owned by our Company ATF Family Trust, they have the existing mortgages on them, but have point blank refused to refinance. Both properties are significantly cash-flow positive.

At one point, they had an application for seven months before spitting it out and saying "no comprende".

Them and ING.....absolutely woeful. ING had an application for four months and then said "nope....don't want to play".

So we've given it all to CBA. They wanted several tomes of support docs, but they gave us the money.

 

[Rolf Latham]

Dont use the term HDT in ur convo and it does go better


recent refis / purchases that are generally ok with HDTs ( and the third party security borrowing that goes with it if u are PAYG)

1. NAB ( NOTE homeside though)
2. Bendigo Adelaide Bank, BUT only via mortgage manager
3. WBC
4. St George
5. AMP
6. Heritage ..........but beware
7. ING, but never again ( or at least not while I have a
8. BOQ (nit via us , but have seen outcomes)
9. IMB
10. Macq bank ( now using Been-delayed Wholesale funds)
11. ANZ have recently removed them from their acceptables


And there are others. Ok so not all lend will do them, but realise this often has more to do with that the HDT process doesnt fit the lenders sausage factory, and requires proper consideration.

ta
rolf

 

[nathank]

(maybe slightly OT, but interested in the recent changes to the MGS TD)

So, not knowing a lot about HDT's, one of the things i am interested in with a unit trust is the negative gearing aspect, in NSW there is land tax issues with unfixed UT's. Does the same still apply for HDT's that you need to have the units fixed? and does the trust need to be settle in NSW as well?

i'm looking at using a fixed UT to buy an IP with a colleague, but would prefer to do a HDT if i can to give discretion on disturbing the income when it becomes CF positive and keep the negative gearing when its CF negative in the early years.

is that now a "no-no" under the current law changes?

 

[Terryw]

(maybe slightly OT, but interested in the recent changes to the MGS TD)

So, not knowing a lot about HDT's, one of the things i am interested in with a unit trust is the negative gearing aspect, in NSW there is land tax issues with unfixed UT's. Does the same still apply for HDT's that you need to have the units fixed? and does the trust need to be settle in NSW as well?

i'm looking at using a fixed UT to buy an IP with a colleague, but would prefer to do a HDT if i can to give discretion on disturbing the income when it becomes CF positive and keep the negative gearing when its CF negative in the early years.

is that now a "no-no" under the current law changes?

In NSW the trust needs to be a fixed trust to qualify for land tax thresholds. No requirement for it to be settled in NSW.

The trustee can have discretion as to distributte income, but then you would lose deductibility of interest. If no discretion, ie fixed unit hold is to get all capital and income then the individual could claim the interest. Once the proeprty goes cashflow positive it is possible for the trust to buy back the units (and borrow to do so). This can be done in stages to reduce CGT etc..

 

[Aaron_C]

The trustee can have discretion as to distributte income, but then you would lose deductibility of interest. If no discretion, ie fixed unit hold is to get all capital and income then the individual could claim the interest. Once the proeprty goes cashflow positive it is possible for the trust to buy back the units (and borrow to do so). This can be done in stages to reduce CGT etc..

Isn't this practice something the ATO heavily scrutinises?

 

[Terryw]

Isn't this practice something the ATO heavily scrutinises?

Sorry, which part? The selling of the units?

It could be looked at by the ATO, but as long as everything is done at arms lenght, then shouldn't be a problem.

One problem, though, would be the terms of the mortgage would probably prohibit the unit holders transferring their units. Actually the loan would need to be restructured each time units are redeemed, so it would be a pain in the bum doing it in too many stages.

 

[Aaron_C]

Sorry, which part? The selling of the units?

It could be looked at by the ATO, but as long as everything is done at arms lenght, then shouldn't be a problem.

One problem, though, would be the terms of the mortgage would probably prohibit the unit holders transferring their units. Actually the loan would need to be restructured each time units are redeemed, so it would be a pain in the bum doing it in too many stages.

Yes I was referring to the buyback of trust units. I remember reading that this is a transaction the ATO doesn't like because most people do it to reaccess negative gearing. I'm not sure whether they have a legal standpoint on this, but then again, Part IVA applies to anything regardless and is always their fall-back option.

 

[redwing]

As we all know myself and a few other accountants have been using MGS HDT deeds for some time as we have felt confident in them passing an ATO audit.

House of Wealth have just had an audit done on a HDT, with the amendments, and the audit has been completed without any issues.

http://houseofwealth.com.au/tax-and-accounting/hybrid-trust-passes-audit/

Didn't you go cold on HDT's for a while back in favour of other alternative strategies/structures Mike?

 

[nathank]

Sorry, which part? The selling of the units?

It could be looked at by the ATO, but as long as everything is done at arms lenght, then shouldn't be a problem.

One problem, though, would be the terms of the mortgage would probably prohibit the unit holders transferring their units. Actually the loan would need to be restructured each time units are redeemed, so it would be a pain in the bum doing it in too many stages.

So, i'm confused now without giving away you're secret sauce, why would anyone bother with a HDT? maybe i'm missing the advantages.

sorry to ask such a basic question, maybe i'm missing something, but seems like the ato shutdown the discretionary part? i thought before you could fix the capital units and make the income units discretionary? (it clearly shows why i haven't bought a HDT TD yet!)

 

[Aaron_C]

So, i'm confused now without giving away you're secret sauce, why would anyone bother with a HDT? maybe i'm missing the advantages.

sorry to ask such a basic question, maybe i'm missing something, but seems like the ato shutdown the discretionary part? i thought before you could fix the capital units and make the income units discretionary? (it clearly shows why i haven't bought a HDT TD yet!)

It's supposed to be the Holy Grail of property investment trusts. You get access to negative gearing, have flexibility of income distribution to the highest income earner when the trust is negatively geared, while still retaining that flexibility to distribute to the lower income earner/s if the trust turns positive. All the while keeping the capital gains tax concessions, small business concessions (for business trusts) etc. Chan & Naylor kept promoting it for a long time but they've gotten lots of people into trouble I think.