HDT Passes ATO Audit. A Plus !!

Redwing

I don't really recommend HDT's anymore not because of the interest deductibility issues but the land tax issues in NSW.

Just encouraging for those in an MGS HDT that provided the deed is upgraded then interest deductibility isn't an issue with the ATO.
 
Aaron_C said:
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).
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Right, so that's what I thought... but I got the feeling from Terry that the ATO have hit the breaks on it...

So does the MGS trust deed allow this structure? anyone have an idea of what the changes (high level, not the deed wording) that were included?

Chan & Naylor kept promoting it for a long time but they've gotten lots of people into trouble I think.
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When they approached me and dangled the carrot, it was a $4500 set-up fee! thought i was getting propositioned by a high class escort, but alas... only a bunch of bean counters :(
 
Aaron_C said:
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.
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The trust would be buying back income producing units. So it shouldn't really be an issue if everything done at commercial rates.
 
nathank said:
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!)
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A HDT is basically a unit trust that has the ability to be converted into a discretionary in full or part.

There can be still many advantages besides taxation. You may want to issue fixed units to one person of a group and discretionary income to others of the group. Or you may want to have the flexibility to change the trust set up later without having to change the legal ownership.

Also there is the refinancing principle, and maybe this is what Aaron was getting at above, with the trust borrowing to buy some or all of the units back and claiming a deduction - which releases funds to the unit holders who would pay CGT, but then have access to the cash to buy personal items. Its kind of like being able to borrow to buy personal items and have the trust claim a deduction for this.
 
nathank said:
Right, so that's what I thought... but I got the feeling from Terry that the ATO have hit the breaks on it...

So does the MGS trust deed allow this structure? anyone have an idea of what the changes (high level, not the deed wording) that were included?


When they approached me and dangled the carrot, it was a $4500 set-up fee! thought i was getting propositioned by a high class escort, but alas... only a bunch of bean counters :(
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You cannot have your cake and eat it too!

Any one who buys units in a trust with the possibility and likelihood that they would not receive an income from the purchase of these units wouldn't be able to claim much of a deduction. It doesn't make commercial sense.
 
Aaron_C said:
Isn't the whole purpose of this to buyback the units from the unitholders, then sell them to the unit holders again to re-access negative gearing?
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This wouldn't work becaues the units would be bought and sold and this would cancel any benefits.

What usually happens is the trustee borrows to buy the units back and can claim the interest on funds borrowed to do so.
 
Terryw said:
This wouldn't work becaues the units would be bought and sold and this would cancel any benefits.

What usually happens is the trustee borrows to buy the units back and can claim the interest on funds borrowed to do so.
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I see. Thanks for that clarification Terry.
 
Thanks Terry, appreciate the time you've taken to reply :)

it cleared up a bunch of questions i had and shot a few misconceptions i got from the C&N boys
 
Is double CGT an issue? Obviously if you sell the units back to the HDT for more than what they were issued for then you’d have to pay for CGT. Fine. But what happens if/when the HDT sells the property? Won’t it pay CGT on the whole gain... again? So double CGT?

Also, what about stamp duty on the unit transfer? Couldn’t it get caught in the land rich provisions?

These are legitimate questions – not statements. I believe these to be issue but are interested in what others say?
 
StuartW said:
Is double CGT an issue? Obviously if you sell the units back to the HDT for more than what they were issued for then you’d have to pay for CGT. Fine. But what happens if/when the HDT sells the property? Won’t it pay CGT on the whole gain... again? So double CGT?

Also, what about stamp duty on the unit transfer? Couldn’t it get caught in the land rich provisions?

These are legitimate questions – not statements. I believe these to be issue but are interested in what others say?
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Hi Stuart

Yes.cgt would be payable potentially twice.

Stamp duty would payable on the transfer of units too in most states. Land rich provisions. Land rich provisions could apply too which may mean higher duties
 
coastymike said:
Redwing

I don't really recommend HDT's anymore not because of the interest deductibility issues but the land tax issues in NSW.

Just encouraging for those in an MGS HDT that provided the deed is upgraded then interest deductibility isn't an issue with the ATO.
Click to expand...

Thanks Mike,

I'm encouraged and updated my MGS HDT some time back as recommended
 
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