HDT Update

:D

Further to NickM's post on the InvestEd forum....

Last year; we had the tax office ask for a lot of information on the HDT that we use in relation to about a dozen clients.

We provided all the usual information and the tax office went away for a little while and then came back and asked to see copies of minutes; unit certificates and trust deeds. These were duly provided and the tax office thanked us for our co-operation and did nothing more.

This year, we again received an enquiry (yes, just one out of the 400 plus trusts that we lodge) from the tax office and we duly answered with all the information requested and noted that the ATO had conducted a review of the HDT structure last year with no action. We noted the name and contact details of the fellow involved.

The respnse from the tax office was quick and to the point......"we have no problem with the HDT, we just need to make sure that the interest was incurred, can we please have a copy of the bank loan statement?"

The refund cheque was released 2 days later with no further action necessary.

Of course, there is more information available on the HDT. But, this clearly demonstartes to those people who refuse to listen that the ATO ahve no major problem with the structure when a good trust deed is used and the laws are applied properly.

Have fun
Dale
 
Hi Dale,

That's great news, as I will be setting up my HDT structure next week :)

Can you confirm, that the main issue the ATO may have in the future, would occur only if the user redeemed the units at original price thereby avoiding capital gains tax? And that if the units are never redeemed, or are redeemed for current market value, then there should be no problem?

I have some other comments (and a poll!) on HDT structures in the thread below...

http://www.somersoft.com/forums/showthread.php?t=33554

Cheers, Shadow.
 
Dale, thanks so much for all your hard work and input on this...there are those of us out there who are listening, and we appreciate you!!:)

glad to see you're not retiring from the forums too:p

cheers
UC
 
We still have at least 4 ATO PBRs against Hybrid and Dale's word it is ok. We are listening. Please just give us an independant reference that will show us when HDTs are acceptable to the ATO.
 
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We still have at least 4 ATO PBRs against Hybrid and Dale's word it is ok. We are listening. Please just give us an independant reference that will show us when HDTs are acceptable to the ATO.

Hi Julia,

Can you think of a reason why they would not be acceptable (if used correctly)?

For the ATO to have an issue, they would need to prove that tax was avoided, but the tax incurred under a HDT is exactly the same as it would be if the property was owned in personal names.

So if the alternative to a HDT does not result in any more tax paid, why would the ATO have a problem with HDTs?

Cheers, Shadow.
 
We still have at least 4 ATO PBRs against Hybrid and Dale's word it is ok. We are listening. Please just give us an independant reference that will show us when HDTs are acceptable to the ATO.

I am obviously not an accountant but have made many enquiries about the use of HDTs for clients.

My understanding is that it's not the"trust" which is right or wrong or acceptable or unacceptable.

It's the use to which you put it - the purpose for using a trust - the way you borrow and the documentation.

Has a trust been used to avoid tax? Or has it been used for a legitimate purpose such as for asset protection or to pass on assests to beneficiaries?
 
So if the alternative to a HDT does not result in any more tax paid, why would the ATO have a problem with HDTs?

Cheers, Shadow.

If you redeem units at cost price or a nominal 'market value', then sell the property, and distribute capital gains amongst beneficiaries, it could be seen as a way of minimising CGT - ie. if the property was in your own name and you sold it, it all the CGT would be paid by you.

I think this is what the NTAA was suggesting, but someone else here may be able to clarify futher.....

GSJ
 
If you redeem units at cost price or a nominal 'market value', then sell the property, and distribute capital gains amongst beneficiaries, it could be seen as a way of minimising CGT - ie. if the property was in your own name and you sold it, it all the CGT would be paid by you.

I think this is what the NTAA was suggesting, but someone else here may be able to clarify futher.....

GSJ

Hi GSJ, sure... yes I agree with this, and I would see this as an incorrect use of the trust. This is why I asked Julia if she could think of any reason why the HDT would not be acceptable *if used correctly*.
 
Hi GSJ, sure... yes I agree with this, and I would see this as an incorrect use of the trust. This is why I asked Julia if she could think of any reason why the HDT would not be acceptable *if used correctly*.

My argument would be, if you can't redeem the units at cost, you lose the income and CG streaming ability. Isn't that a major reason for using a trust in the first place? Also, how this works in a bankruptcy proceeding (i.e. whether creditors can claim your units have market value and claim that as part of your assets).
Alex
 
Shadow said:
I would see this as an incorrect use of the trust
By what standard?

It is a perfectly legitimate use according to my trust deed, which explicitly allows for that. The ATO may see a potential tax advantage in that operation, but then trusts provide plenty of tax advantages anyway, so why should this one be any different (other than perhaps because it wasn't intentional)?

GP
 
HDT and PBR

I have seen a tax accountant who worked previously in the ATO. He is comfortable with HDT. Provided all the trust memorandums are up to date, the deeds provide for it, tax trust laws are complied with, HDT should be alright.

From my previous negotiation with ATO over other tax issues for a church it depends on the discretion of the ATO officer. They are public servants not fascists. If the law provides for it they must have reasonable grounds to believe that there is evasion. An individual usually does not have the legal know-how and deviousness to evade tax. A scheme arrangement seeking a PBR and promoted by a tax lawyer is another matter.

Sometimes we can be over labouring whether HDT is legitimate, although for the best intention. In this case, I see the glass is half-full rather than half empty. :)

F
 
:D

The respnse from the tax office was quick and to the point......"we have no problem with the HDT, we just need to make sure that the interest was incurred, can we please have a copy of the bank loan statement?"

Hello Dale,

Would you have ATO's response in writing? Could you please provide a scan of the letter?

The only written information from the ATO as far as I know are the PBRs which were not positive for the HDT structure.

I think Trust Magic did state that having written evidence is extremely important.

Regards

Tom
 
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