Property Investor Trust - The Facts

[NickM]

New Developments !

For those that may think that Batten or I have it wrong you may be interested in see in the latest press release from the OSR.

If you follow the link below you will see the OSR and State Treasury Officials opinion.

http://www.osr.nsw.gov.au/portal/page?_pageid=33,1&_dad=portal&_schema=OSRPTLT

I would be interested to see how the PIT deals with this latest change.

In relation to the interest deductibility it might be wise to have a look at IT2684 to see what the ATO’s view is in relation to interest deductibility. Paragraph 9 of IT2684 outlines when interest will be apportioned. “An interest expense is not fully deductible in those cases where the expected return from the units, both income and capital growth, does not provide an obvious commercial explanation for incurring the interest”.

Borrowing to acquire units that give a right to a distribution of the first years rent and NO rental increases does appear to lack the commercial explanation the ATO is referring too.

I think the PIT now has 2 fairly significant problems

NickM

 

[geoffw]

So, come on....if you have not given Nick judos yet, please do so NOW!

Yes, give him judos! That should throw him!

 

[JIT]

Verdict

With no land tax benefit anymore, and questionable validity of distributing rental income, the PIT clearly seems worse than the UT/HDT combination, as it is strictly for property only. On top of that you have the inflexibility of not having the trust deed and relying on Chan and Naylor et.al.

GSJ

 

[austini]

Wow,

This thread just keeps getting better and better. Excellent and entertaining reading even for someone like me who doesn't invest in NSW.

Go Nick....

Cheers - Gordon

 

[austini]

Hi Gang,

I was very surprised to find out from another forum that it is supposably Kevin Munro & Assoc who draw up the trust deeds for the PIT. This firm I was led to believe has significant expertise with HDT's and were using them long before most others had even heard of them. Unless I'm misinformed this legal firm was an advisor to Chris Batten earlier on prior to him putting together his HDT deed etc.

Based on everything I have ever heard about Kevin Munroe & Assoc it is a bit of a shock to think that they could have messed up when putting together the PIT deed. Kevin in particular as I understand it is considered to be an expert in this area.

Maybe the OSR changes to the treatment of Unit Trusts wasn't known at the time. However it would be deceptive for the promoters of the PIT not to make potential purchasers of the PIT aware of what is happening with Land Tax.

Regards - Gordon

 

[see_change]

Hi Gang,

I was very surprised to find out from another forum that it is supposably Kevin Munro & Assoc who draw up the trust deeds for the PIT.

Regards - Gordon

After the presentation , there were various discussions going on , and in one of these we were told that it was Kevin's Partner ( ? Associate ) who had drawn up the trust deed though when this occured was not asked.

Up to now we've been reliant on the information ( or lack of ) provided by Naylor and Chan as to the correct and proper use of the PIT , so I think we should be wary before drawing any conclusions from any other parties involvement and the implications that has.

Kevin does have a very good reputation . We've consulted him in the past about CGT implications of a previous subdivision.

See Change

 

[austini]

Hi SeeChange,

Thanks for the info.

Yes I'm certainly not jumping to any finite conclusions about the matter. I have heard nothing but the most positive reports about Kevin Munro and Assoc and spoke briefly to Kevin once about HDTs. I was extremely impressed with Kevin. Nigel also has recommended them in the past. Hence this is why I was so surprised when I saw on the Navra forum this morning someone mention that it was Kevin Munro's firm that writes the PIT trust deeds.

Thanks - gordon

 

[Grego]

I visited C&N today & was happy with what was explained to me. However my undersatanding of trusts is Limited.
I will try and outline what I was told and if someone could please explain to me how this differs from other trusts i would appreciate it

I was informed a hybrid trust (PIT) would have 2 parts.

1 - is a unit trust where I purchase units in the trust and receive income from the trust (from the property it holds)

2. - there is a discretionary part where the trustee can distribute capital gains (as he sees fit) on any assets sold from within the trust.

A further unit trust could be hung off this for any property purchased in NSW & in some way this alleviated the need to pay Land Tax on the NSW property.
It was pointed out to me that the OSR was looking into all these trust structures and there was NO guarantee that this set up would continue to be exempt from land tax.
It was also mentioned that there was no land tax threshold in Victoria ( I think ) so this set up would not alleviate a land tax call in that state.

I was given plenty of Literature to read (haven't had a chance to read it all yet) but it delves into + & - of various types of trusts, costs of set up & ongoing costs

Just out of interest on the last page of the C&N booklet given to me are several testmonials including a rather nice one from a C Batten " Macquarie Street" Taxation Consultant.

As I said I have limited understanding so if someone could explain the diff between what C&N are offering and others like Chris B I would really appreciate it

Thanks
Greg

 

[JIT]

Greg, just curious here, what did the testimonial actually say?!

 

[DaleGG]

Hi

I was under the impression that Ed Chan wrote his own testamonial from Chris Batten and that this was unauthorised. I remember hearing that Chris Batten asked Ed to remove it....

Perhaps NickM can clarify as he knows a little more.

Dale

Just out of interest on the last page of the C&N booklet given to me are several testmonials including a rather nice one from a C Batten " Macquarie Street" Taxation Consultant.

As I said I have limited understanding so if someone could explain the diff between what C&N are offering and others like Chris B I would really appreciate it

Thanks
Greg

 

[NickM]

yes Dale that is right

Grego - do you mind scanning or typing up the testimonial ?

Thanks
Nick

 

[Grego]

"I service over 200 accounting firms in Australia with specialist tax advice & Chan & Naylor are in the top 5% in technical knowledge. They are one of the only three accountants I would recomend in Sydney.

Christopher Batten, Macquarie Street Taxation Consultant

 

[grossreal]

hi nickm
thanks for the information and well done I went to two meeting on this trust and got no real info at the first and a far bit on the second but the information was not correct from my records of the meeting to what has transpired.
I do understand a fair bit about trusts and structures and the osr ruling not only could affect this structure but also affects some others and people may need to have a look at their structure to see if it affects them.
thanks again and well done

 

[Chris Batten]

Testimonial from Batten

I have NOT provided Chan and Naylor with a testimonial from myself.

If Grego is correct and there is a testimonial in the recent booklet handed out by Chan and Naylor they are using my name without permission.

In April 2005 I threatened Chan and Naylor with legal action for using my name without authority. They assured me that this would cease immediately.

I do advise many accountants and it is not my view that Chan and Naylor are in the top 5% and I haven't recommended any client to Chan and Naylor. I know and recommend many accountants in Sydney and Chan and Naylor are not one of them.

Chris Batten

 

[JamesGG]

Hiya,

Chris, thank you for clearing that up.

Can we expect to see more of you in over in this neck of the woods? I am sure that I am not the only person here who could benefit from your fountain of knowledge and expertise...

Cheers

James.

 

[JoannaK]

Hi Chris,

Welcome to the forum.

I understand how busy you must be, but I do hope you can stick around as I'm sure many of us would find your contributions extremely helpful.

Thanks for your comments in this thread.

 

[Grego]

Chris,I've got the booklet sitting on my desk, which I received yesterday I don't wish to cause waves amoungst the IP community but I would be upset if someone used one of my wedding pictures without permission.

Could someone explain to me the difference between what C&N are offering and others please???

Thanks
Greg

 

[austini]

Hi Chris,

What an honour it is to have you post at this forum. It would certainly be great to see you post here again in the future.

Regards - Gordon

 

[Chris Batten]

Different Trusts

You will all have to excuse me as I am a virgin forum poster, if that is the correct expression.

Greg I'm not sure that the only difference between the PIT and other structures is the marketing. The PIT as I understand it is a unit trust with all the units being owned by a hybrid trust. The fact that an application has been made to the trademark office does not relate in anyway to the contents of the deed. Following the OSR decision to assess unit trusts as special trusts the alleged land tax saving in NSW will not be available. You say "A further unit trust could be hung off this for any property purchased in NSW & in some way this alleviated the need to pay Land Tax on the NSW property". That is not correct. Unit trusts in NSW will be taxed as special trusts. The OSR are NOT looking into various trusts. I spoke last week to a very senior person in OSR and they told me that following consultation with Treasury there position is contained in the fact sheet posted on this site.

The majority of hybrid trusts, and not just the ones from Chan & Naylor or Chris Batten, provide for negative gearing in an individuals name and flexible distributions of capital gains. There is little if any difference. If you are considering setting up such a structure ask as many questions as possible, get a good understanding and seek a second opinion. All of this is not new and the main thing is that you understand what you have and how it operates. If you want certainty from the ATO as to the alleged tax benefits apply for a Private Binding Ruling. I know for a fact NickM has done so for a hybrid trust and received a ruling for a client.

I would like to address a question I saw recently on this forum, may have been a different thread, that I thought was answered incorrectly.

Question: Can the trustee of a unit trust be the same as the trustee of a discretionary/hybrid trust that holds all the units. The answer I saw was yes.

Answer: No. If the trustees are the same then the unit trust will merge. Chris Batten can't hold assets on behalf of Chris Batten who holds assets for a certain class of people. As decided by Studdert J. in the ISPT case "Equity will not recognise a trust where the legal owner and the beneficiary under such trust is identical".

Solution: Make Dad the trustee of the unit trust and Mum and Dad the trustee of the discretionary/hybrid trust.

I note some of you have questions about how hybrid trusts work and when you should use a unit trust/hybrid trust or just a hybrid trust. Post your questions and I will do my best, time permitting, to answer them.

Can someone tell me why I seem to be the only person posting under my real name? Is this a no no on forums?

Chris Batten

 

[WashingtonBrown]

I have NOT provided Chan and Naylor with a testimonial from myself.

If Grego is correct and there is a testimonial in the recent booklet handed out by Chan and Naylor they are using my name without permission.

In April 2005 I threatened Chan and Naylor with legal action for using my name without authority. They assured me that this would cease immediately.

I do advise many accountants and it is not my view that Chan and Naylor are in the top 5% and I haven't recommended any client to Chan and Naylor. I know and recommend many accountants in Sydney and Chan and Naylor are not one of them.

Chris Batten

Hi Chris

I understand your angst.

We currently have an issue of copyright at the moment which i will advise this forum once our lawyers are satisfied.

Is it a state of the market issue? I am unsure.

Regards