Hybrid Discretionary Trusts - The final word.

Discussion in 'Accounting and Tax' started by Chris Batten, 22nd May, 2011.

  1. Chris Batten

    Chris Batten Member

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    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
     
  2. Chris Batten

    Chris Batten Member

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    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
     
  3. Chris Batten

    Chris Batten Member

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    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
     
  4. JIT

    JIT Member

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    Thanks Chris, that makes more sense now.
     
  5. coastymike

    coastymike Member

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    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.
     
  6. Aaron_C

    Aaron_C Finance Broker

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    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?
     
  7. Chris Batten

    Chris Batten Member

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    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
     
  8. shuggy

    shuggy Banned

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    Agreed, C&N stuffed it up for everyone.
     
  9. redwing

    redwing Progress Not Perfection

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    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.


    [​IMG]

    Que Sera, Sera
     
  10. austini

    austini Member

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    Chris,

    Thanks so much for the above post. This is something I was not aware of.

    Cheers - Gordon
     
  11. Ms Jade

    Ms Jade Down the Rabbit Hole

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    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?
     
  12. Terryw

    Terryw Investor

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    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.
     
  13. josko

    josko BluePlanet-Green Shackles

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    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
     
  14. emptyvessel

    emptyvessel Nothing witty to say

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    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
     
  15. Piston Broke

    Piston Broke Banned

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    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:
     
  16. coastymike

    coastymike Member

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    You have a bad experience with a hybrid piston ? Or a lawyer screw you over ?
     
  17. Chris Batten

    Chris Batten Member

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    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
     
  18. Chris Batten

    Chris Batten Member

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    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
     
  19. Chris Batten

    Chris Batten Member

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    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
     
  20. JIT

    JIT Member

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