Meet the (HDT) Knockers!

John,

The ATO has responded with 4 rulings against Hybrids. They are only IDs but at this stage it looks like the only answer we have from the ATO is the negative. So I would have to say don't go into them until you have a positive ruling from the ATO for your particular deed. The IDs are: 66298, 71023, 65710 & 66594.

It is my opinion that there is always another way to achieve the same result without using a HDT.

Julia
 
David,

Have you read these threads and the PBRs? Why are you choosing to use a HDT? What are your circumstances? Why do you think a HDT is the only way to achieve the result you want? Have you sought the latest opinion from the person that set up your HDT?
 
Yes, I did get in touch with them within the last few weeks and was advised 'steady as she goes' and to go ahead with it until further notice.

I've read this thread but have not read the PBRs. I will do so soon.

I am using a HDT mainly for asset protection, tax planning and flexibility.

This property is seriously negatively geared so I couldn't see other trust structures working for me. The only other option I considered was owning it in my own name as I'm on a high income.

It's due to settle in 10 days.
 
David,

Have you read these threads and the PBRs? Why are you choosing to use a HDT? What are your circumstances? Why do you think a HDT is the only way to achieve the result you want? Have you sought the latest opinion from the person that set up your HDT?

Hi Julia,

What do you think of the PIT ( Property Investors Trust) then; as they claim to have resolved the Part IVA issue/problems (amongst a few other things) :confused:
 
Yes, I did get in touch with them within the last few weeks and was advised 'steady as she goes' and to go ahead with it until further notice.

Hi all. I thought I'd mention that I've been in touch again with those who I established the deed and am totally confident with my new HDT/IP purchase and that it's valid with the ATO.

If you are in doubt, I suggest you approach your accountant and solicitor.
 
Hi all. I thought I'd mention that I've been in touch again with those who I established the deed and am totally confident with my new HDT/IP purchase and that it's valid with the ATO.

If you are in doubt, I suggest you approach your accountant and solicitor.

David, what exactly gives you this confidence? Has the ATO made a private ruling in favour of its terms? Or are the trust terms similar enough to a positive ruling that already exists?

Or are you confident because your trust deed provider is competent and confident that it will be valid? I note that just because a professional is competent doesn't mean a tax strategy will past muster with the ATO. Big firms get whacked on tax shelters all the time.
Alex
 
Hi David,

Did you or your advisors get something in writing from the ATO saying it is all OK, or is it verbal or from barristers?

GSJ
 
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One of the issues some people (and the ATO) seem to have with some HDT structures is that they are seen as having the primary purpose of avoiding tax. However the same people (and ATO) have no similar issue with normal discretionary trusts.

With a discretionary trust, any negative gearing losses are quarantined in the trust to be off-set against future income. With a Unit Trust/HDT structure, the negative gearing losses are immediately off-set against current income.

I view it another way. I think if the ATO wanted to ban ANYTHING, it will be able to find some technicality to do it. What stops them (or defeats them in the courts) is a combination of fairness and politics. Surely from a tax collection perspective the ATO would love to outlaw normal discretionary trusts, but discretionary trusts have been used for so long and has so much political support (perhaps because many executives, pollies, etc use them) that the ATO would never get away with destroying it. That's why the 'tax trusts as companies' law went nowhere. i.e. I think the ATO hates discretionary trusts, but there is so much case law, history and support behind it that they would never be able to dismantle it.

I'm sure the ATO wouldn't complain if they took away negative gearing on residential property in personal names, but really, what pollie would risk that when so many voters own IPs?

HDTs are different because it's relatively new and the ATO can attack it without affecting discretionary trusts. Outlawing HDTs probably won't invite much backlash from pollies.

i.e. IMHO it's not about whether HDTs are 'bad', it's that HDTs WILL decrease tax receipts (mainly from streaming). The ATO doesn't care about asset protection: it cares about collecting as much tax as it can within the law. It's not a moral issue, but more 'does the ATO think they can get away with it'?

In any case, asset protection is another issue. Even if the ATO allows the interest deductions but deems redemption of the income units to be at market value for CGT purposes, what does that do in a creditor situation? Will the courts view an asset (the income units) that have a market value for tax purposes to also have market value for bankruptcy purposes?
Alex
 
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David, what exactly gives you this confidence? Has the ATO made a private ruling in favour of its terms? Or are the trust terms similar enough to a positive ruling that already exists?

The answer to this is 'sort of'.

Or are you confident because your trust deed provider is competent and confident that it will be valid? I note that just because a professional is competent doesn't mean a tax strategy will past muster with the ATO. Big firms get whacked on tax shelters all the time.
Alex

It's more than just this.

Did you or you advisors get something in writing from the ATO saying it is all OK, or is it verbal or from barristers?

I'm really sorry guys but I don't feel comfortable or that it's appropriate for me personally to release the full details on this information.

What I can suggest is those with HDTs contact their accountants / solicitors for the latest updates.

If you don't have a HDT, you're not in the process of purchasing (as I am - 9 days till settlement on a 600k place!) and you just want to know out of interests sake, then I'd say just wait out until an official announcement is made from the appropriate people.

You all know who you can contact directly if you really really can't help yourself :). I'm also well aware that if I just post they're response up here that will prevent them getting bombarded with contacts. Maybe that is whats required for them to make an announcement?

It's quite obvious this is a sensitive issue for some and I don't want to get in the middle of it. I hope you understand my situation.
 
I would imagine that if a positive ruling or similar came from the ATO, the trust experts on the forum would be the first ones to post links to it, since it will vindicate their views and increase their business (and rightly so). Their silence suggests that it's a matter of 'we're not sure yet'.
Alex
 
The answer to this is 'sort of'.



It's more than just this.



I'm really sorry guys but I don't feel comfortable or that it's appropriate for me personally to release the full details on this information.

What I can suggest is those with HDTs contact their accountants / solicitors for the latest updates.

If you don't have a HDT, you're not in the process of purchasing (as I am - 9 days till settlement on a 600k place!) and you just want to know out of interests sake, then I'd say just wait out until an official announcement is made from the appropriate people.

You all know who you can contact directly if you really really can't help yourself :). I'm also well aware that if I just post they're response up here that will prevent them getting bombarded with contacts. Maybe that is whats required for them to make an announcement?

It's quite obvious this is a sensitive issue for some and I don't want to get in the middle of it. I hope you understand my situation.
This sounds promising. :)
 
David Mc

I am using a HDT mainly for asset protection, tax planning and flexibility.

This property is seriously negatively geared so I couldn't see other trust structures working for me. The only other option I considered was owning it in my own name as I'm on a high income.

If you owned the property 1% in your name and 99% in your spouses and used the rental property salary sacrifice concept discussed on www.bantacs.com.au you would have asset protection on 99% of the property and 100% deduction for the cash flow expenses of the property with only 1% of the income. And this concept has an ATO ruling and test case on 50% ownership. There is a kit to get your own ruling on 1% ownership. Should not be a problem as the relevant word in the legislation is "jointly" not equally so no way the ATO can argue it has to be 50%.
Tax wise this should give you a better result than a HDT

Julia
 
David Mc



If you owned the property 1% in your name and 99% in your spouses and used the rental property salary sacrifice concept discussed on www.bantacs.com.au you would have asset protection on 99% of the property and 100% deduction for the cash flow expenses of the property with only 1% of the income. And this concept has an ATO ruling and test case on 50% ownership. There is a kit to get your own ruling on 1% ownership. Should not be a problem as the relevant word in the legislation is "jointly" not equally so no way the ATO can argue it has to be 50%.
Tax wise this should give you a better result than a HDT

Julia

Doesn't work well if you're both high income earners and high litigation risk, or if your employer won't agree to it, or you keep changing employers...

GSJ
 
If you owned the property 1% in your name and 99% in your spouses and used the rental property salary sacrifice concept discussed on www.bantacs.com.au you would have asset protection on 99% of the property and 100% deduction for the cash flow expenses of the property with only 1% of the income. And this concept has an ATO ruling and test case on 50% ownership. There is a kit to get your own ruling on 1% ownership. Should not be a problem as the relevant word in the legislation is "jointly" not equally so no way the ATO can argue it has to be 50%.
Tax wise this should give you a better result than a HDT

Julia

This makes sense to me, thanks for the information.

Doesn't work well if you're both high income earners and high litigation risk, or if your employer won't agree to it, or you keep changing employers...

GSJ

Doesn't work that well either if you're single...
 
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