New Website for Batten

[coastymike]

All,

You may be interested Chris Batten has just launched a new website full of valuable information including links to Investor One TV which is full of great information for investors.

www.investorone.com.au

 

[Ebbie]

Speaking of Chris Batten, todays Sunday Telegraph had a story on the unfair taxation of unit trusts.

'Tax specialist Chris Batten is launching an advertising campaign today urging change':

http://www.news.com.au/dailytelegraph/story/0,22049,22775375-5006009,00.html

While they're at it they should mention the high land tax costs of holding property in trusts too.

Sorry coastymike, don't mean to hijack your thread.

 

[MissMuffitt]

Thanks for that link... I have just learned a lot about wills and have registered on that site. Well worth a look around.

 

[redwing]

Thanks CoastyMike

great to see you back for a visit

 

[julia]

Interesting that while Hybrid trusts are mentioned on Chris' new site if you look under trust they are not listed. Does this mean he has got his answer from the ATO?

 

[coastymike]

Julia,

If you read the page it says "There are many variations however, the basic, are unit and discretionary trusts." So hybrids are not on there as they are not one of the basic variations that are discussed in the preceeding paragraph.

With respect to his views on hybrid trusts and gearing please refer to the video at http://prc.macquariegs.com.au/?client=i1

 

[julia]

Thanks coastymike,

I had a listen. Would I be correct in concluding the ATO accepts redemption of units at CPI increase?

 

[Mry]

That was interesting Coasty. I'll have to think about that one.

 

[coastymike]

Julia,

I can't divulge any discussions between Chris and the ATO and the outcomes of those discussions but either a commercial rate, CPI or market value must occur on redemption of the special income units. It is also important that the special income unit holder be assessable on any capital gain while the income units are being held.

 

[JIT]

Does this mean that if unit value is linked to CPI, therefore, the unit holder is guaranteed of capital gains on redemption, then that is a valid and commercial reason for the negative gearing?

As opposed to having unit value tied to the market value of the property, which means the property could go up OR down in value, so there is no guarantee of capital gains at redemption?

 

[Pat]

Lets just role play and see what we come up with.

You are a Judge presiding over a tax case where there is a hybrid trust with one property in it and units have been issued. Three years after issue the units are redeemed and the CPI has been 1.7% p.a. and the increase in the market value of the property has been 7% p.a.

What capital value are these units redeemed at your highness?

 

[JIT]

Lets just role play and see what we come up with.

You are a Judge presiding over a tax case where there is a hybrid trust with one property in it and units have been issued. Three years after issue the units are redeemed and the CPI has been 1.7% p.a. and the increase in the market value of the property has been 7% p.a.

What capital value are these units redeemed at your highness?

But you don't really know at the start whether the property will end up returning 7% pa, particularly over a short 3 year period - during which values may even fall.

Whereas, you do know at the start that you will get an increase in unit value if CPI is used - it's like having a 'capital guaranteed' investment now.

Just like those Macquarie Bank Products, and people have been negative gearing with these, and after several years some may have even have lost their capital, had it not been for the 'capital guarantee/protection' feature in the product.

If you have a bearish outlook in the short to medium term, you may opt for linking unit value to CPI, rather than market value.

Wouldn't that make commercial sense?

In the long term, the investment will eventually become positively geared anyway, and it is the ongoing income you're more interested in, not future realised capital gains 'income'.

An investment in SIU's, where the underling asset is property, like investing in Macquarie Bank structured managed fund products or other geared investments, has pros/cons/risks that all form part of the 'commercial' investment process.

Don't you use Batten's deeds Pat? - if so, are you saying you would not value units at redemption based on CPI increases, but rather use market value?

Thanks.

 

[Pat]

Jit,

I can't remember the last time I saw a capital guaranteed product of 2% that took off in the market place. Both sides of politics aim to keep inflation at 2% and lets face it they are doing a good job of it and all their rhetoric during this election campaign is aimed at keeping inflation at these levels.

We use MGS hybrid trust deeds and are very happy with them. They aren't for every client but the long term client focussed on accumulating properties in many cases is best served via a hybrid trust.

Wanna have a shot at a decision in the aforementioned case?

 

[JIT]

We use MGS hybrid trust deeds and are very happy with them. They aren't for every client but the long term client focussed on accumulating properties in many cases is best served via a hybrid trust.

Wanna have a shot at a decision in the aforementioned case?

I think you could argue it either way, but success would largely depend on the particular investor and their objectives when using the trust to purchase property.

Is that the right answer?

What is your take on the above case?

 

[Pat]

Come on Jit,

Barristers make arguments Judges make decisions based, hopefully, on aggressive common sense.

Wanna have another go?

 

[JIT]

Come on Jit,

Barristers make arguments Judges make decisions based, hopefully, on aggressive common sense.

Wanna have another go?

Common sense...probably market value.

But how do you justify redeeming units at the market value of the property to your clients who purchased these properties in HDT's??

Hmm...I'm getting confused now.

 

[Pat]

Bingo

and I forgot to tell you Jit that in this role you were a High Court Judge so there is no taking this argument further

 

[JIT]

Bingo

and I forgot to tell you Jit that in this role you were a High Court Judge so there is no taking this argument further

I still don't follow how you can advocate for HDT's with this view?

Are you suggesting your clients don't redeems units at all?? So no income streaming??

 

[Mry]

It seems rather self defeating to do it this way. The highest income earner pays capital gains on the disposal of the units, a gain that would not be incurred by a individual or if the property was in a DT of its own. And if you are redeeming the units at market value when it becomes positively geared, that would be down the track about seven years when the property has grown 80%+, making the HDT owner pay tax on an internal transaction that they then have to find the money for.

People would pay money to get this advice?

 

[JIT]

It seems rather self defeating to do it this way.

Yes, I'm not sure what Pat's getting at here?