Meet the (HDT) Knockers!

[julia]

My response about salary sacrificing rental property expenses was specific to David Mc's circumstances. Eariler I asked him for his particular circumstances because the solution varies. I am happy to give an answer for other scenarios if you want to post them.
David in 10 years from now, assuming the property is just starting to become possitively geared or you are about to sell it for a capital gain. Who do you think you would like to receive the income or capital gain?

 

[Chilli]

Hi Julia,
My employer is the Qld Government. Would the same form be used ?
Ta

 

[julia]

Hi Julia,
My employer is the Qld Government. Would the same form be used ?
Ta

Yes, but print the information off the web site first and discuss it with them. No point in buying the form etc if they won't do it.

 

[DavidMc]

My response about salary sacrificing rental property expenses was specific to David Mc's circumstances. Eariler I asked him for his particular circumstances because the solution varies. I am happy to give an answer for other scenarios if you want to post them.
David in 10 years from now, assuming the property is just starting to become possitively geared or you are about to sell it for a capital gain. Who do you think you would like to receive the income or capital gain?

Just to paint the full picture:
29, Single, High income, 4 IPs, Growth oriented buy and hold IP investor. Favours high LVRs and debt to service debt.

I feel like I'm walking into a bit of a trap here in answering this question (as you've obviously asked it to illustrate a point )... but off the top of my head here goes...

In 10 years from now maybe I'll have a wife and children. If I sell a property or my trust generates a profit I think I'll be required to distribute a portion (assuming half if my property has doubled in 10 years) to myself as the holder of the special income units, but I'll be able to able to distribute the other half to other beneficiaries on a lower income (my wife, kids, brother, etc).

I'm not fully up to speed on the answer to this question as I don't expect my portfolio to generate a positive cash flow (potentially ever - I constantly draw on equity and gear up - although I know I should show that it does make a profit sometimes otherwise I might attract unwanted attention from the ATO) nor is selling part of my strategy.

 

[NormH]

Horses for courses and what I think

Hi folks,
I have sat on the side and read this with some interest now from day one and I have decided to make a comment. Before that happens however I will declare my position/interests.
1) DaleGG is my accountant and has been for almost 4 years now. I have over the years had a total of 3 others, number#3 lasted 1 year numbers #1 and #2 lasted 12 years and 10 years respectively. All of these are in Adelaide except for DaleGG. Reasons I moved was lack of property focus despite promises or a change of focus over the years particularly #2.
2) I have an HDT, this was setup my my Solicitor/Lawyer Stewart-Rattray in Adelaide and is actually a ChrisBatten HDT that Justin obtained for me.

So now my bias' have been exposed here goes.

The pro/con HDT and Julia's already in tax law idea.

I will eliminate the con HDT first, why not set up an HDT? just don't issue share's and you have the flexibility in the future. I guess that is easy to say if I have a ChrisB HDT as I am fairly confident that ChrisB has a particular interest in his HDT to the extent that he is talking to the ATO to ensure it is compliant. This leads me to believe his motive is not as a spruiker of a concept to sell something to make money off or a get rich quick scheme. He is a Solicitor/Lawyer and I believe is driven to do it right, even though he may make money later I don't see it as the driver. (Spruikers = no effort, little research, zero investment, maximum ripoff). Now I am no expert but Trust Deeds can be altered and trigger no costs/capital gains tax as long as the beneficiaries and other things don't change the essence of the original deed. I would hope that whatever the outcome with the ATO and ChrisB that most trusts would be able to be altered to comply. I guess you need to ensure that variations to the deed are possible and that would stem from how good the original deed is.

So now the Should I use an HDT or Julia's solution question. I am conservative and married.
Yes I am happy to say I have a wife and Deb is happy to say she has a husband - we are old and "partner" sounds ummm "so uncommitted" sorry different forum different day.

Julia's idea is sound and the ATO have okayed it so if I could I would think of doing that. As long as I could get the co-operation of my employer, not always that easy, and Deb could get the co-operation of her's incase she starts earning more than me, and of course assuming that neither of us change jobs in the following 15 years otherwise I have to try and negotiate with a new set of employers prior to leaving our existing jobs for the same co-operation. So as you can see with the good will and co-operation of a lot of people over a long time I could do this and in all honesty I woud probably do this if I had only 1 investment property because the extra messing around would be probably worth it.

BUT (always a but )

When I started out in this game way back in the 80's I was going to only buy 1 property I bought a number, almost went bankrupt, ie sold everything and started again. I started again and now have 5 properties 4 in my name and one in HDT and others will follow in HDT (another story, somewhere on this site already).

So after all the rambling my summary, I would use HDT from ChrisB ensuring the deed gave me the ability to alter the deed (it does) for no reason other than I don't really know how many properties I will own in 10 years time, I expect to be still married to Deb and all my children are alive and healthy. That is why I would use an HDT because I don't know what will happen tomorrow. For the same reason our (mine and Deb's) wills appoint our younger son as the appointer upon our death. For the same reason that the rest of our assets in the will are all placed in a 3rd generation Testamentary Trust. Tax is only 1 consideration in a plan, the HDT offers many benefits and allows a flexable plan to cover many contingencies not just one.

Yes there is a cost associated with all of this but it is my wealth plan and setting up my family for the long term that is the driver not tax. There is a cost associated with running a wealth plan and I am prepared to accept that for the long term benefit to my peace of mind.

Thankyou for your time

Norman.

Just sitting here on the side, listening, watching, reading and learning. To prove it I now know that MGS = Maquarie Group Services and IBR = Individual Binding Ruling. See I am learning.

 

[tubs]

Could someone please summarise the problem that is concerning people with HDTs?

It seems to me that the problem is that the units are redeemable at any point in time, which means you get the -ve gearing effect until it goes positive, then you can turn it into a normal DT by redeeming the units. But the ATO only allow you to claim initial losses on an income producing investment, and since you'll sell the units as soon as it becomes income producing (+ve geared), means its only being done to avoid tax. And so the ATO are knocking it back based on this.

If this is correct, then am I also correct in saying that HDTs are still valid as an asset protection structure, but that the only potential difficulty is with redeeming the units and distributing income to lower income earners for tax purposes.

It would effectively be the same as a property owned in your own name, that was asset protected.

Thanks

Tubs

 

[Twentyseven]

Could someone please summarise the problem that is concerning people with HDTs?

It seems to me that the problem is that the units are redeemable at any point in time, which means you get the -ve gearing effect until it goes positive, then you can turn it into a normal DT by redeeming the units. But the ATO only allow you to claim initial losses on an income producing investment, and since you'll sell the units as soon as it becomes income producing (+ve geared), means its only being done to avoid tax. And so the ATO are knocking it back based on this.

From my understanding I thought they knock some back because the trustee still has a discretion over who gets the income. They say that although there is a clause in the deeds which say income must go to the unit holder, the trustee still has the power to decide what is "income" and what is "capital".

 

[JIT]

Hi folks,
I have sat on the side and read this with some interest now from day one and I have decided to make a comment...

Thanks for that balanced and thoughtful post. Good to hear another POV on here.

GSJ

 

[Terryw]

I like Julia's idea, but do not think it is as flexible as the HDT. With the HDT, these can be inflexible early on, but can revert to a DT later giving the full benefits of asset protection and tax reducing capacities.

 

[JIT]

Could someone please summarise the problem that is concerning people with HDTs?

There were several really long threads on HDT's, but here is a summary of my thoughts on the debate that I posted last year, it's pretty long in itself, and I can't really be bothered reading it again to see if it still makes any sense (ADD: you may be more confused after reading it!) - but here it is in the link below (about half way down the page):

http://www.somersoft.com/forums/showthread.php?t=27342&page=6

GSJ

 

[JIT]

Hi there,

Here's NickM's reply to ATO reviews of the MGS deeds. Doesn't seem like he has had many problems with it.

http://www.invested.com.au/4/hdt-deeds-maquarie-group-services-13469/

GSJ

 

[alexlee]

Is there a difference between a Private Tax Ruling and just satisfactory answers based on an ATO query? Also, how does the NickM ones contrast with the ones where the interest deductions have been disallowed by the previous private rulings?

I find it interesting that the ATO will allow some deeds to go through and not others based on technicalities and wording. ATO rules and tax law tends to be deliberately vague so that they can interpret as they see fit.
Alex

 

[NigelW]

I find it interesting that the ATO will allow some deeds to go through and not others based on technicalities and wording. ATO rules and tax law tends to be deliberately vague so that they can interpret as they see fit.
Alex

That's the reality of our tax system. Bear in mind also, that the ATO gets it wrong quite often. ATO is full of good people I'm sure, but whilst the letter of the law may say one thing, there may be a policy position driven by protecting the revenue base which means the ATO will argue the contrary view.

In fact they've been smacked around a lot by the Inspector General for this.

Cheers
N.

 

[monoply]

I see Dale is retiring. Thats great news for him. I guess he will still be in the background if any HDT questions arise?

Cheers
mono

 

[DaleGG]

Hi

Yes, I am retiring on Friday 29th June.
Yes, I shall be around to assist James and the others with enquiries re trusts, tax and wealth related issues. I am retiring, not abandoning.....

Have fun

Dale

I see Dale is retiring. Thats great news for him. I guess he will still be in the background if any HDT questions arise?

Cheers
mono