Hi,
I have read up on how a HDT works in theory but I am trying to understand how it really works in practice. So I have created a scenario below to help me understand the issuing of Special Income Units, and what Capital is in a HDT.
A HDT was set up on July 2008, with a Corporate Trustee.
In May 2009, The Trustee signed the sales contract to purchase a residential property for 500k. A cheque of $50K for the 10% deposit was made from an offset account against my PPOR.
Settlement occurred on August 2009. On settlement, a cheque of $75K for the remaining 10% deposit + purchase costs was made from the same offset account.
My husband & I took out a Joint bank loan for 80% of the property price $400K.
Inclusive of purchase costs, the property costed $525K in total.
Immediately after settlement, $5K was spent to renovate property before renting it out.
1. The 20% deposit + purchase cost for each property is a loan from my husband & me to the Trust. Should we be issued with Special Income Units for this amount? Or is it contributed towards the CAPITAL of the Trust?
2. Is a legal agreement required to be drawn up between us & the Trust for the loan?
3. When should the Special Income Units be issued? At Settlement? Or as each amount is loaned to the trust?
4. How many Special Income Units should be issued?
5. How is the money spent on the renovation treated? As capital or Special Income Units? The money came from the offset account.
6. What is used to record the amount of money loaned to the Trust? A resolution?
7. At each financial year end, what accounting records need to be kept to indicate Trust income/expenses and Trust income distribution?
Thank you for your help.
P.M
I have read up on how a HDT works in theory but I am trying to understand how it really works in practice. So I have created a scenario below to help me understand the issuing of Special Income Units, and what Capital is in a HDT.
A HDT was set up on July 2008, with a Corporate Trustee.
In May 2009, The Trustee signed the sales contract to purchase a residential property for 500k. A cheque of $50K for the 10% deposit was made from an offset account against my PPOR.
Settlement occurred on August 2009. On settlement, a cheque of $75K for the remaining 10% deposit + purchase costs was made from the same offset account.
My husband & I took out a Joint bank loan for 80% of the property price $400K.
Inclusive of purchase costs, the property costed $525K in total.
Immediately after settlement, $5K was spent to renovate property before renting it out.
1. The 20% deposit + purchase cost for each property is a loan from my husband & me to the Trust. Should we be issued with Special Income Units for this amount? Or is it contributed towards the CAPITAL of the Trust?
2. Is a legal agreement required to be drawn up between us & the Trust for the loan?
3. When should the Special Income Units be issued? At Settlement? Or as each amount is loaned to the trust?
4. How many Special Income Units should be issued?
5. How is the money spent on the renovation treated? As capital or Special Income Units? The money came from the offset account.
6. What is used to record the amount of money loaned to the Trust? A resolution?
7. At each financial year end, what accounting records need to be kept to indicate Trust income/expenses and Trust income distribution?
Thank you for your help.
P.M