Hybrid Discretionary Trusts - The final word.

Thanks. Do you have any links that might describe a few scenarios using Unit Trusts? I am trying to figure out why I would bother if it doesn't give me any (or significant) asset protection. I am sure it fits in certain plans, I would like to determine if it would fit my plans.

Will HDT's always be "on the nose"? Or will they redeem themselves.

Is it that there is no way to use them to balance asset protection with negative gearing without having the ATO rip you a new one each year?
Emptyvessel

Using unit trusts has been addressed in this thread. If you want to give me a scenario I will address it. I assume most of you are medical practitioners or some kind of professionals as you appear to have a high concern for asset protection. For those that aren't professionals or in a high risk business may I suggest avoiding defaming people and drink driving and you should be less concerned about asset protection.

HDTs that conform with the ATO view are not on the nose.

The concern again with asset protection appears to over ride the tax effectiveness of a certain structure.

Chris
 
Decision made, the most effective move I can make here is to maximise my time finding the best advisor I can that matches my style and strategy. (As well as challenging me to think differently.)
Emptyvessel

What you say about finding the best advisor that matches your style and strategy is spot on. You need to find an advisor that has an open mind and can advise you on structures and the advantages and disadvantages as well as the risks. Many of you should also use the private binding ruling system more to gain certainty as the application for a PBR is free and it binds the ATO to what they said.

Chris
 
Yes, Trusts is a very nebulous area of the law...it's an area of law from which lawyers can afford to buy their massive Brighton beach houses
Aaron

Many other areas of the law are very nebulous and lawyers make significant money from those areas. I should disclose one of my collegues is a finance broker who lives in Point Piper and has a holiday house on an island off Queensland. Are you saying it is a bad thing if someone is good at their job and successful or is it a trust thing or a lawyer thing?

Chris
 
JIT

A discretionary trust is created when a settlor (fancy word for the person who contributes the first amount of money) pays an amount, usually $10 to the trustee to start the trust.

Section 102 of the ITAA36 provides the Commissioner with the power to assess the trustee where the settlor or his or her children can benefit. Hence the settlor is normally someone who is not related and will never benefit.

Further amounts can be settled on the trust by other people, including beneficiaries. To settle is to gift. The subsequent settlements are the amounts being refered to in the PBR.

Chris
Thanks Chris, that makes more sense now.
 
Oh what a disgusting thing. Surely they should have rebated all the commissions back to the individual, offerred free advice, organised meetings and paid for the coffee and biscuits free of charge. Terrible thing for them to be making money at the expense of the poor home owner. What a great tragedy.
 
Aaron

Many other areas of the law are very nebulous and lawyers make significant money from those areas. I should disclose one of my collegues is a finance broker who lives in Point Piper and has a holiday house on an island off Queensland. Are you saying it is a bad thing if someone is good at their job and successful or is it a trust thing or a lawyer thing?

Chris
I think it is a little presumptious for you to allege that - I never said that lawyers (or any other profession) should not get paid for their services. All I am saying is that it is a difficult area of law. If your friend has done well then good luck to him. Why turn this into a fight?
 
Thanks Chris, that makes more sense now.
JIT

Many people lend money to a discretionary trust. I don't understand this or the reasons behind it. If you gift money or settle money on a trust it forms part of the capital (corpus of the trust). Distributions of corpus are tax free under section 99 (B) (2) of the ITAA36.

Why lend money interest free to a trust instead of settling the money on the trust? It's because your advisors haven't read section 102 of the ITAA36 carefully enough and realised the creator of the trust in that section only relates to the person (settlor) who created the trust. Not the person who subsequently settled further amounts on the trust.

Chris
 
They had accepted my HDTs for over 10 years. Just because some people come along and trademark a deed and push it too far and spoil it for everyone isn't my fault. I am certain had it not been for the PIT none of this would be happening.

Chris
Agreed, C&N stuffed it up for everyone.
 
I think it is a little presumptious for you to allege that - I never said that lawyers (or any other profession) should not get paid for their services. All I am saying is that it is a difficult area of law. If your friend has done well then good luck to him. Why turn this into a fight?
It's hard to convey intent via email or an anonymous forum Aaron, I wouldn’t be too perturbed, other intent could be inferred from your previous post also.



Que Sera, Sera
 
Why lend money interest free to a trust instead of settling the money on the trust? It's because your advisors haven't read section 102 of the ITAA36 carefully enough and realised the creator of the trust in that section only relates to the person (settlor) who created the trust. Not the person who subsequently settled further amounts on the trust.
Ooh, this is news to me too. Chris, is the 'creator' referred to in a definition clause or is there case law on this? (Don't worry about telling me what the cases are).
Just to clarify: a settlor is prohibited from receiving trust distributions, but as the $ settled is corpus it is not regarded as income. So can a settlor always be paid back the initial sum settled?
 
Ooh, this is news to me too. Chris, is the 'creator' referred to in a definition clause or is there case law on this? (Don't worry about telling me what the cases are).
Just to clarify: a settlor is prohibited from receiving trust distributions, but as the $ settled is corpus it is not regarded as income. So can a settlor always be paid back the initial sum settled?
The settlor (or his children) isn't prohibited from benefiting from the trust, but there will be adverse tax consequences. As a result many trust deeds would have clauses in the deed excluding the settlor as a beneficiary. this would be the case whether the settlor actually receives money or not.

It is probably not a good idea to return the initial settled sum as this is what kicks off the trust in the first place. One of the requirements for a trust to exist is trust property and if you remove the property then the trust could fail. But the trust could have acquired other property after that, however as the settled sum is usually $10 it would be just as easy to leave it on trust.
 
Newsflash!...I hope.

The ATO is accepting the HDT trust with a little change to the deed. What that change is, I am yet to find out. Just waiting on confirmation and more detail.

Regards JO
 
Emptyvessel

I thought I had covered a lot of material on this in this thread. I am happy to answer your questions if you want to ask them.


Chris
Thanks very much for taking the time (and patience) to do this Chris. I think you probably have answered alot of this material in the thread. I read it a few times and didn't get more comfortable with the content. So I asked as plainly as I could. And thankfully you answered as plainly as you could.

I believe I may have found one good advisor to assist in this area over the next few months. They do appear to be thin on the ground IMHO.

Thanks again,
EV
 
Are you saying it is a bad thing if someone is good at their job and successful or is it a trust thing or a lawyer thing?
Chris
Maybe this thread would not exist if they were good at their jobs.
Maybe many people would not be trying to get out of their trust deed arrangements if they were good at their jobs.
And maybe they would be promising asset protection and tax deductions if they were good at their jobs.
And just maybe, they would give some guarantees that their product lives up to the promotion if they were good at their jobs.
I'm starting to think that your not very good at your "job" Chris, but very good at other things.
Or maybe what I perceive to be your job is not really your job.
Lawyer? Promoter? Marketer? Advisor? Taxation specialist? Tax advisor? BS artist? Scare monger? :confused:
 
Chris, is the 'creator' referred to in a definition clause or is there case law on this? (Don't worry about telling me what the cases are). Just to clarify: a settlor is prohibited from receiving trust distributions, but as the $ settled is corpus it is not regarded as income. So can a settlor always be paid back the initial sum settled?
Ms Jade

A trust is created when a settlor pays an amount to the trustee to be held for the benefit of beneficiaries. It is not necessary to be a defined term but normally is a defined term. The initial settlor is only prohibited from recieving a benefit because that is what is drafted into most discretionary trusts. It is put there to avoid the ATO applying section 102 and assessing the trustee.

In the absence of the settlor being excluded by way of a clause in the deed the settlor may benefit. I'm not actually sure the Commissioner would use s.102 to assess the trustee.

Chris
 
Newsflash!...I hope. The ATO is accepting the HDT trust with a little change to the deed. What that change is, I am yet to find out. Just waiting on confirmation and more detail.
Jo

A little confused. Posted on this thread is a private ruling whereby the ATO accepts that a full deduction for interest is available for a special unitholder in a hybrid trust received on 11 April 2011. Is it possibly a little late for a newsflash?

Chris
 
I'm starting to think that your not very good at your "job" Chris, but very good at other things.
Mr Broke

Fortunately the Institute of Chartered Accountants, Taxation Institute of Australia, CCH Australia Limited and many other bodies think I am good at my job which is why I provide a tax/super training service for their members.

Don't be cranky and aggressive if the decisions you have made have left you Piston Broke. I have seen some of your other posts and suggest you follow the link below.

I am still happy to answer your questions or feedback should they ever have any clarity, purpose or constructive application.

For those suffering depression or anger issues beyondblue

Chris
 
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