Property Investor Trust - The Facts

[coastymike]

Mary,

Noone is bickering. It's about having an educated discussion regarding a "new" product on the market. The concern that a number of us have is that claims are being made about the product which are inaccurate.

I am also highly concerned that Chan & Naylor may have created a false testimonial and used that as part of their marketing. Using someone who is respected within the tax profession as a testimonial without their permission is fraud and should not be tolerated.

So it's about discussing the product, the people behind the product and then allowing others to make informed decisions. Obviously Chan & Naylor disagrees with some of the comments made and they have responded accordingly. Thank goodness for freedom of speech.

 

[austini]

Hi Gang,

I'm no expert in these matters by a long shot but I still think it pays to keep things simple. The HDT available from Macquarie (Chris Batten's deed) is relatively simple to operate and now with the Land Tax benefit not available to the PIT I really can't see how it offers anything that much different to the HDT. Plus the HDT works beautifully for shares as well.

I often wonder if people come to regret locking themselves into unnecessarily complex structures especially later down the track when one tends to want to just enjoy life and not have to worry about messy structures and crapping themselves everytime law changes are mentioned. And when the laws do change (as they usually do) the more complex the structure the more headaches one is likely to have.

I would rather be spending my retirement at the beach and not living in the accountant and lawyers office. Dale excluded of course as he fortunately keeps things nice and simple and has plenty of medicinal fluids available to numb any rare accounting induced headpains.

Anyhow just my humble opinion.

Regards - Gordon

 

[Chris Batten]

Lets get moving

I would like to start by saying that I will only post, and continue to post on this forum if we all move forward and engage in constructive conversation about tax, trusts and property. I do not want to engage in any more banter about a product that no one is allowed to see and is being marketed like a can of soft drink or a bucket of chicken.

My final word is that if anyone tells you, including myself, they are the only ones that know how to draft, settle or prepare a tax return for a trust and get it right, move on. I saw the benefits of the PIT on Chan & Naylors website and I have seen many unit/hybrid trusts over the years from many people who offered the same benefits. The Oxford Dictionary defines Game as "a form or spell of play or sport, esp a competitive one played according to rules decided by skill, strength, or luck." Tax is not a game.

Now for Greg. You posted two questions. Should I be speaking to a solicitor or accountant first to determine what structure best suits me. Yes. I would suggest an accountant as he/she will be the one lodging your return and in the first instance dealing with any queries with the revenue authorities. I would suggest the guys who post on this forum, NickM, CoastyMike or DaleGG. I know them all and they are technically very competent. Your second question was can I will properties to a trust. Yes you can and it is called a Testamentary Trust. A Testamentary Trust is one created on your death as opposed to an Inter vivos trust which are the types of trusts we talk about on this forum. There exists huge tax benefits, especially dealing with minors of using a Testamentary Trust (i.e. minors are assessed at the adult tax rate sec 102AG(2) ITAA36). I would strongly suggest you all look into this. Another reason for a Testamentary Trust is asset protection. What if you die and your spouse or kids are being bankrupted. If there's enough interest I will dig out a paper and post it on the site.

From GSJ. Would you like to share your idea of poison property? The basis for this is superannuation. The Superannuation Industry (Supervision) Act (SISAct) provides that a superfund can't do certain things including:

1. Acquire an asset from a member or an associate of a member unless the asset is commercial real property or shares sec66(1) SISAct,
2. Invest in a unit trust that itself acquired an asset from a member or associate of a member sec 71 SISAct and regs 13.22B, 13.22C and 13.22D SISRegs.

Therefore a residential rental property acquired in an individuals name, company or discretionary trust cannot be transferred at a later stage to a self managed superfund or a unit trust in which a self managed superfund invests. There are certain narrow exceptions but I would suggest you ignore them at this stage. So for the purposes of cashing out your super early (i.e. rental property in and cash out) the property is poison in terms of the trustee of the superfund. He can't touch it.

If, however, the residential property was acquired from an arms length third party in a unit trust then a self managed superfund may acquire units as the unit trust did not acquire the property from a member or associate of a member. Please remember there exists restrictions on the trustee of the unit trust if a superfund owns the units (i.e. no borrowings and the asset cannot be used as security).

Why is this important? I see many people who have rental properties outside super, say, in a discretionary trust debt free and have built up a large amount of cash in super. When I ask them what is the rental property for they respond by saying my retirement. They invariably ask me how they can get their hands on the cash in their superfund for a pool or to retire non-deductible debt. If they had acquired the property in a unit trust they could issue and redeem or transfer the units to the superfund in exchange for the cash. At a later stage they could convert the superfund to a pension fund and receive their rents in retirement effectively tax-free. This is also important now that the government has introduced pre-retirement pensions.

I hope that shed some light on what I consider an important consideration when structuring a residential property investment.

And finally the story CoastyMike tells about my wife is true, however being an ugly man married to a very attractive lady it happens all the time.

Chris Batten

 

[JIT]

More posts!

Chris,

Thanks for that reply on the benefit of using structures like the UT + HDT to enable assets to be transferred to a SMSF, there have been only a few posts on the forums regarding this. Also, I suspect the benefits of actually having a SMSF (eg, tax advantages, asset protection) are not appreciated by many on the forum, particularly the young'uns, so it may not be something they think of.

I agree with your thoughts on arguing about the different trusts. This thread is at risk of being further derailed into another one of those public slinging matches which we have witnessed several times before on the forum, I can remember one recently involving DaleGG and also one a while back involving Michael Yardney. They can be entertaining!, but don't necessarily add a huge amount of value to the forum...and can turn ugly!

There's now at least a little bit more information or diversity of opinions about the pros/cons of "the PIT" to help some of us make our own verdict on it and move on.

I think your experience and expertise would be INVALUABLE to property investors on this forum, so any contribution would be very appreciated by all here.

GSJ

 

[stevem]

Hi Chris,

I'm very interested in learning more re Testamentary Trusts and would be very greatful if you'd post your paper on the subject.

Many thanks
Steve

 

[Mr. Fabulous]

Chris,

I am also keen to see the paper relating to Testamentary Trusts. Would be good to have, so as to be able to discuss such matters with clients.

Mark

 

[austini]

DT/HDT/SMSF Assets & Death

Hi Chris,

One issue which I have seen raised on the forum in the past which never seems to get any clear answer is how to deal with DT/HDT etc assets upon death. I did see a solicitor about this a few years ago and can't say that I'm all that confident with them. Now that we have added a MGS HDT and SMSF (previously only had one DT) we're going to get our Wills etc redone. However I would like to have a little more background knowledge this time around to ask the right questions etc.

When it comes to Trusts there seems to be quite a few accountants and lawyers around who are somewhat lacking in expertise. So I have learnt that it pays to have some basic knowledge yourself to judge the quality of advice.

Look forward to anything you can add in relation to this matter.

Many thanks - Gordon

 

[babushka]

Hi Chris,

One issue which I have seen raised on the forum in the past which never seems to get any clear answer is how to deal with DT/HDT etc assets upon death. I did see a solicitor about this a few years ago and can't say that I'm all that confident with them. Now that we have added a MGS HDT and SMSF (previously only had one DT) we're going to get our Wills etc redone. However I would like to have a little more background knowledge this time around to ask the right questions etc.

When it comes to Trusts there seems to be quite a few accountants and lawyers around who are somewhat lacking in expertise. So I have learnt that it pays to have some basic knowledge yourself to judge the quality of advice.

Look forward to anything you can add in relation to this matter.

Many thanks - Gordon

Agree with Gordon. If Chris can help to clarify / explain to some of us who have HDT and SMSF in dealing with the assets in these in our wills, we would appreciate it very much.

 

[Grego]

Chris Thanks for the replys above

What if you die and your spouse or kids are being bankrupted. If there's enough interest I will dig out a paper and post it on the site.

I would also like to see a bit about the testamentary trust.

I guess what concerns me when I die, is that my kids will have a rather valuable portfolio of properties (several of which are outside any future trusts) and I want to be able to protect my childrens interests from any future divorced husbands or wives getting there hands on the assets.

Greg

 

[Mr. Fabulous]

Grego,

That's what I like about testamentary trusts, they protect the assets that YOU built up from greedy ex-wives and husbands of your children who want to steal everything you own because they're too lazy to build anything for themselves. Also there's the tax benefits and flexibility of the trust of course.

Mark

 

[House_Keeper]

I am also very interested in testamentary trusts, as I am in the process of re-doing our will to include a testamentary trust.

Thanks,

 

[DaleGG]

Hi

NO!!!!

I have spoken at seminars with others but, I would not regard any of them as my friends.

I admire some of the people mentioned and hold others with nothing short of contempt.

Integrity is very important and I am not prepared to be involved with people who lack it.

This thread is not about friendship. It is about a product that has been pitched at investors and is now under the microscope.

I would like to say a lot more but feel that it would not be wise to do so in a public forum.

Dale

I don't understand why everyone is bickering?

I thought Dale Gatherum-Goss, Ed Chan, Steve McKnight, Geoff Doidge, Michael Yardney etc were all friends?

They were recently holding seminars and workshops together and backing each other up. Michael Yardney sems pretty quiet on this thread since i last remember he was defending the PIT.

 

[emu]

I would also like to see a bit about the testamentary trust.
I guess what concerns me when I die, is that my kids will have a rather valuable portfolio of properties (several of which are outside any future trusts) and I want to be able to protect my childrens interests from any future divorced husbands or wives getting there hands on the assets.
Greg

My thoughts too

 

[tony100]

After reading through the posts on this tread I have finally decided to put in my two cents worth as I feel I might be able to contribute (about time!).

As some of you know, I do not profess to be an expert – far from it. I’m the one seeking out information, not giving it. Now as it happens Eddie (from Chan & Naylor) is my accountant. Has been for over six years. I have PIT and am happy to share my experience with it. Please understand this is just my personal experience.

My understanding of the PIT structure is this:

PIT (Property Investors Trust) is a version of HDT and the PT (Property Trust) is a version of a Unit Trust . The only difference is they have designed it specifically for properties. The PIT is not a combination of UT and HDT. They are separate trusts but they refer to both as a “PIT” for ease of communication to the general mum and dad people. I was at the SIG meeting at which Chan & Naylor presented and I clarified this with them afterwards (incase I did not have the product they were promoting). I was told that I do. I also have their Property Trust (PT)- their version of a UT. This is different to the PIT. The PT, like a UT gets a land tax threshold until last week (February 2006) when the OSR changed the way they treated Unit Trusts.

That said, PIT and PT was not recommended to me purely to avoid land tax. I was always told that the land tax rules could change and that the land tax exemption may a temporary benefit. Because I have other land in my own name I have used up my personal land tax threshold and whether I now have the properties in my name or in the PT or UT or HDT or PIT, under the new rules, will mean I pay the same “Rate” of land tax but I would still have preferred a land tax threshold on my PT.

Asset protection and the ability to stream income and reduce capital gains tax and save on stamp duty were the main reasons I went with the product. I had hoped to avoid land tax but am sure that even without that benefit the structure is still very viable for me – I sure hope so anyway.

So there you have it, I am disappointed that the rules have been changed and that I now have to pay more land tax but I accept that taxes do change.

I am more than happy with the advice that I receive from Eddie as he is very knowledgeable about property investment and is an advocate of the refinancing strategy. He has also advised me other clever strategies using properties.

I hope this sheds some light on the situation.

Tony

 

[JIT]

Tony, with no land tax benefit and if distributing rental income to beneficiaries is also possibly a temporary benefit, then the PIT becomes worse than a UT + HDT combination, as it is limited to property and what's more it is new and untested, and, you have to rely on Chan et. al and their requirements/fees for all work related to it, as no-one else seems to be using it. If you purchase investments/structures based on what "may" happen to tax laws, I think people call this "speculating"!

GSJ

 

[Grego]

I'm no expert in these matters by a long shot but I still think it pays to keep things simple. The HDT available from Macquarie (Chris Batten's deed) is relatively simple to operate and now with the Land Tax benefit not available to the PIT I really can't see how it offers anything that much different to the HDT. Plus the HDT works beautifully for shares as well.

Gordon, Who In sydney would I see for this structure?

That said, PIT and PT was not recommended to me purely to avoid land tax. I was always told that the land tax rules could change and that the land tax exemption may a temporary benefit.

I was told the same the other day when I visited them. I just have to try & get my head around the whole concept

Greg

 

[JamesGG]

Hiya,

Assuming you are referring to the HDT (as opposed to the PIT)...

If you are after a great accountant in Sydney to set up and look after a trust for you, your best bet will be NickM.

You can find him at his website here.

Cheers

James.

 

[Mry]

I'm glad Chris talked about poison property as it deals with a topic sort of discussed on this thread. Strangely enough, I think that was a Chan suggestion.

What I take away from this discussion is that it is better to stick with tax solutions that aren't under heavy debate between experts in the field. If Chris Batten, who I respect, disagree with others (especially where such disagreements quote sections of law and cases), best to wait until there is some form of agreement between those parties until committing yourself to a structure. Speculation in tax law should be left to people with deep pockets for lawyers. As I tell my clients, you should always buy income producing assets in the right structure from day one and if you aren't sure, use a structure that you know will work and wait for the dust to settle on the rest.

 

[austini]

Gordon, Who In sydney would I see for this structure?

Hi Grego,

As James mentioned, I've heard that Nick M is a great choice if you want an accountant based in Sydney to setup a trust structure using deeds originating from Chris Batten.

Although I'm based in Brisbane I actually use Dale GG (in Melbourne) to setup my structures which also use the same MGS deeds created by Chris Batten. For those who are reading this thread and aren't based in a city of these recommended accountants it really doesn't matter where you live. We've used Dale GG for quite sometime now regardless of where we were located in Australia or Overseas. The distance thing is really not a problem at all. Certainly based on our personal experience Dale GG's service is absolutely amazing to say the least. Best professional service provider (and one hell of a nice guy) I've ever come across in my life.

Regards - Gordon

 

[tony100]

GSJ,

At the end of the day, I needed advice on the best structure to purchase a specific property in. I consulted with my accountant and solicitor and the outcome was that a UT and HDT were recommended to me.

I done some research (I learned a lot from Trust Magic) and decided to go with their recommendations. My decision was not based on speculation. It was make purely on research and recommendations from trusted advisors.

At the time there was no mention of PIT, it was just referred to as a HDT. To this day, I could not tell you the difference between PIT and a "standard" HDT. Nor could I tell you how rules for income streaming differ between PIT and a normal HDT. I concentrate on what I do best (small developments) and rely on my advisors for specific advice. Isn’t this what we all do, consult with our advisors and largely rely on their recommendations? I do know however that I was not the first to purchase this product; many of Chan & Naylor’s clients have them. Is it the best product available for it’s purpose? I would have a clue as I’m not an accountant. I’ll leave that to the experts...


Tony