“I have spoken to Chris Batten about the Property Investor Trust (PIT) and with Chris’s permission have reproduced an email I have received from Chris today.
Dear Nick
I have seen the PIT Deed and can confirm that it is a hybrid discretionary trust that has the ability to direct income to discretionary beneficiaries that would otherwise go to Income Unitholders under the deeds you currently source. The problem is that the ATO MAYapportion the interest in line with IT2684 and Fletcher & Ors v. FC of T 91 ATC 4538 at 4957. The hybrid discretionary trust has many benefits for property investors and to push the limits whereby the arrangement becomes artificial and contrived is asking for trouble from the ATO.
Regarding the alleged land tax savings as a result of CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd [2005] HCA 53, the promises made by the marketeers of the PIT are just plainly incorrect. The OSR, for reasons unknown to me, have been assessing unit trusts as non-special trusts and therefore allowing the exemption. I have always indicated that the OSR could assess a unit trust as a special trust in accordance with the definition contained in section 3A of the Land Tax Management Act 1956. I understand that Ed Chan advocates clients set up a separate unit trust for each property purchased in NSW to enable the client to get the land tax threshold for each property. I spoke recently to some senior people at the OSR and after consultation with the State Government Treasury Officials the OSR will be assessing unit trusts as special trusts from 31 December 2006. This means that unit trusts will no longer receive the exemption. The OSR have indicated they will have no interest in who holds the units in the unit trust.
I would strongly suggest you advise your clients of the above land tax changes as it may affect their decision to proceed with a unit trust/hybrid trust structure. I understand Ed Chan is NOT advising clients of this as he either doesn’t know or wants to sell more trusts. Whichever it is it is not good for the clients as they will receive an unpleasant surprise when they receive their next land tax assessment.
If you have time have a look at my recent show as I interviewed Ed regarding the PIT and you will get a chuckle when you hear his response to my question of how the PIT works. He said
“So rather than me getting into the nitty gritty I might be saying something that’s technically not right because I’m not really in that space.”
It’s very dangerous to advise clients of the state and federal tax consequences of a particular structure when your “not really in that space”.
Regards
Chris Batten”
Dear Nick
I have seen the PIT Deed and can confirm that it is a hybrid discretionary trust that has the ability to direct income to discretionary beneficiaries that would otherwise go to Income Unitholders under the deeds you currently source. The problem is that the ATO MAYapportion the interest in line with IT2684 and Fletcher & Ors v. FC of T 91 ATC 4538 at 4957. The hybrid discretionary trust has many benefits for property investors and to push the limits whereby the arrangement becomes artificial and contrived is asking for trouble from the ATO.
Regarding the alleged land tax savings as a result of CPT Custodian Pty Ltd v Commissioner of State Revenue; Commissioner of State Revenue v Karingal 2 Holdings Pty Ltd [2005] HCA 53, the promises made by the marketeers of the PIT are just plainly incorrect. The OSR, for reasons unknown to me, have been assessing unit trusts as non-special trusts and therefore allowing the exemption. I have always indicated that the OSR could assess a unit trust as a special trust in accordance with the definition contained in section 3A of the Land Tax Management Act 1956. I understand that Ed Chan advocates clients set up a separate unit trust for each property purchased in NSW to enable the client to get the land tax threshold for each property. I spoke recently to some senior people at the OSR and after consultation with the State Government Treasury Officials the OSR will be assessing unit trusts as special trusts from 31 December 2006. This means that unit trusts will no longer receive the exemption. The OSR have indicated they will have no interest in who holds the units in the unit trust.
I would strongly suggest you advise your clients of the above land tax changes as it may affect their decision to proceed with a unit trust/hybrid trust structure. I understand Ed Chan is NOT advising clients of this as he either doesn’t know or wants to sell more trusts. Whichever it is it is not good for the clients as they will receive an unpleasant surprise when they receive their next land tax assessment.
If you have time have a look at my recent show as I interviewed Ed regarding the PIT and you will get a chuckle when you hear his response to my question of how the PIT works. He said
“So rather than me getting into the nitty gritty I might be saying something that’s technically not right because I’m not really in that space.”
It’s very dangerous to advise clients of the state and federal tax consequences of a particular structure when your “not really in that space”.
Regards
Chris Batten”
