Who said a million dollars was on the line? What part of seeing pros did you not understand? I give up. Ok people. I'll never see a proffessional unless they have your sole approval first...sheesh
Purchasing property - Trusts - Discretionary vs Hybrid vs Own name
- Thread starter gavsam
- Start date
Who said a million dollars was on the line? What part of seeing pros did you not understand? I give up. Ok people. I'll never see a proffessional unless they have your sole approval first...sheesh
Actually I think she maybe an SSmember?? I'll ask her and see If she can comment. I'll let her know that you believe her advice is incorrect...and that she should have never ever concured with dales obviously ludicrous advice!! Some people have no shame I tell ya! To be honest I won't say that as she actually scares me 
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Actually I think she maybe an SSmember?? I'll ask her and see If she can comment. I'll let her know that you believe her advice is incorrect...and that she should have never ever concured with dales obviously ludicrous advice!! Some people have no shame I tell ya! To be honest I won't say that as she actually scares me
When you argue over tax you need to back up your arguments with citations of legal authority such as legislation or case law, secondary authority such as ATO rulings or interpretive decisions can also help - but the ATO doesn't always interpret the law correctly.
Citing a popular book is fine, but you shouldn't base your argument on that without doing the research on the law itself. That book was never meant to be an exhaustive analysis for tax professionals but a general introduction to trusts. I purchased it when it first come out and it was a great introduction and very easy to understand.
I would also be interested to find out more precisely your accountant is saying about hybrid trusts.
And, if you are working in the mining industry, I presume you are making good money so have you considered just using a discretionary trust instead? This will result in much more tax savings long term.
Are you suggesting it is worthless alexlee? Confirmation from a real estate investing CPA that concurs with dales book is worthless? Silly to think I need to be an accountant to see an accountant dont ya think? Maybe not. . .Next time I see any pro il make sure I'm a pro first in there field. That way I can get yr approval shall I? Ok. I'm not worthy
The points you've raised regarding trusts in this thread says to me that you don't have enough knowledge to evaluate a professional's opinion. I would expect any discussion on HDTs to be based on case law, tax rulings, etc, not just you saying it's in a book.
You don't need my approval, but you'll need the ATO's.
For something that's relatively new, like HDTs, one needs to be very careful because there hasn't been enough history to iron out the creases. With a family trust, for example, there aren't as many grey areas because there's plenty of case law and lots of 'standard practice' has been grandfathered in (though new things can still come in such as the Bamford case). Trust Magic, nor any other book or paper, has the force of law, especially when a lot of it is untested in the courts.
Not all 'professionals' are created equal. Even if they are knowledgeable, something like HDTs is still a lot of opinions as opposed to concrete law and precedents.
My own personal opinion is that there are too many uncertainties for me to use a HDT. I've read some of the case law and documents from professional associations, and decided that I'm not comfortable with it. Are you comfortable that it'll pass muster with the ATO because 1) you've read the literature and case law and you're comfortable with your trust deed or 2) you're confident in your chosen professional that they've done (1)?
Good luck with it.
The points you've raised regarding trusts in this thread says to me that you don't have enough knowledge to evaluate a professional's opinion.
in general nobody does alexlee. Believe it or not there are somethings in this world you know nothing about and when the time calls for you to seek professional advice on that subject...you to will find yourself in the same position millions face everyday...how do I know what I dont know? Do i have time to know what I do not know? I know what I'll do! I'll pay a professional! Who is liable for there advice! That way I can carry on with the things I want to focus on...woohoo! And so life continues
For something that's relatively new, like HDTs, one needs to be very careful because there hasn't been enough history to iron out the creases. With a family trust, for example, there aren't as many grey areas because there's plenty of case law and lots of 'standard practice' has been grandfathered in (though new things can still come in such as the Bamford case). Trust Magic, nor any other book or paper, has the force of law, especially when a lot of it is untested in the courts.
Agreed
Not all 'professionals' are created equal.
I love this classic. Anyone who has a different opinion, loves to use this classic line. It's true of course...but i always love the context in which it's used
Even if they are knowledgeable, something like HDTs is still a lot of opinions as opposed to concrete law and precedents.
My own personal opinion is that there are too many uncertainties for me to use a HDT. I've read some of the case law and documents from professional associations, and decided that I'm not comfortable with it. Are you comfortable that it'll pass muster with the ATO because 1) you've read the literature and case law and you're comfortable with your trust deed or 2) you're confident in your chosen professional that they've done (1)?
Good luck with it.
thanks. I don't need to know all the nitty gritty details
I'll leave that to the pros. And I'll be getting the best there is...if they say it's not kosher to do so then of course I won't pursue it. But if they do...Alexlee. If hybrids were as dramatic as you say, then why on earth do they exist. Every second person loves to down them so passionately yet they still exist and are frequently used(more then enough to be counted of course
) Why I wonder? Are they brave, stupid or wiser?
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..............a great introduction and very easy to understand.
Read a few books on it now but like most I still seek professional opinion. Unfortunately for some the professionals i seek are no good. I've sent her an email to comment but she hasn't got back to me...maybe she's scared
I would also be interested to find out more precisely your accountant is saying about hybrid trusts.
She didn't say an awful lot. Only that she concurred with that section of the book. Had a copy apparently in her house? It was a brief meeting as I had to fly out to work 1hr later
And, if you are working in the mining industry, I presume you are making good money so have you considered just using a discretionary trust instead? This will result in much more tax savings long term..
If the values extolled by HDTs were true, and the cases and precedents were set by others, do you believe a discretionary trust would still be beneficial on balance to a high income earner? Thanks TerryW
Hi Reeco
Yes, I do believe that a DT is good for a high income earner - the higher the income the better they are!
Say you do use a HDT, the property you buy will not be negative cashflow forever. It will hopefully start making money in a few years. Then you will have the problem of paying tax at the high rate assuming your income is still high. You would need the trust to redeem the units to convert it to a DT. This would mean redoing the loans and paying CGT on your already high income.
If you had used a DT from the start you won't be saving tax initially, but when the property starts making a profit you will be. Your trustee could then send the income to lower taxed relatives. Or if you have none, then a company where the tax rate would be just 30%.
If your income is high and you can save a bit you may even end up with postive cashflow fairly quick, especially if you are putting money into an offset account of the trust.
Yes, I do believe that a DT is good for a high income earner - the higher the income the better they are!
Say you do use a HDT, the property you buy will not be negative cashflow forever. It will hopefully start making money in a few years. Then you will have the problem of paying tax at the high rate assuming your income is still high. You would need the trust to redeem the units to convert it to a DT. This would mean redoing the loans and paying CGT on your already high income.
If you had used a DT from the start you won't be saving tax initially, but when the property starts making a profit you will be. Your trustee could then send the income to lower taxed relatives. Or if you have none, then a company where the tax rate would be just 30%.
If your income is high and you can save a bit you may even end up with postive cashflow fairly quick, especially if you are putting money into an offset account of the trust.
Looks like a pertinent thread to throw this in
see page 2
Family Trust& negative Gearing
Goes against most of what I thought about discretionary trusts?
Curious as to the above...
Hi redwing, this may have been answered, I dunno, but I have made comment on this before and Dale agreed with me at the time. My understanding is that unless you have a commercial reason for doing so, then the ATO won't allow it.
Such a structure would allow anyone to claim tax deductions against their home and if it was possible to do so, everyone would be doing it.
I agree that a DT can be great for a high income earner. If you ever sell the ability to distribute CG to others on a lower income can often outweigh the payg tax savings during. Also if you don't sell the accumulated losses will be handy to offset the income in future years, when your taxable income should be higher than it is now.
Reeco,
Hopefully your decision to use a HDT will work out well for you. But bear in mind that those who are posting above are not doing so just to insult you or whatever but merely highlighting that: accountants and lawyers can have differing views and risk profiles; treating advice from an individual accountancy firm as gospel may prove regrettful; the structure is not without some shortcomings; and it is a more risky structure given that it has not been fully tested in the courts.
In addition some of us non-accountant types have been down the path you're taking a number of years ago when HDT's were the new flavour of the month. Like you we were convinced that based on advice from an accountant combined with some personal reading & research HDTs were the ideal struture. And some of us regretted it. Sure they may still be useful in specific circumstances but you may well find down the track like others of us here that keeping things simple can cause a lot less headaches.
Personally I finally get to close down our HDT after this financial year and all I have to say is "good riddance".
Cheers - Gordon
Hopefully your decision to use a HDT will work out well for you. But bear in mind that those who are posting above are not doing so just to insult you or whatever but merely highlighting that: accountants and lawyers can have differing views and risk profiles; treating advice from an individual accountancy firm as gospel may prove regrettful; the structure is not without some shortcomings; and it is a more risky structure given that it has not been fully tested in the courts.
In addition some of us non-accountant types have been down the path you're taking a number of years ago when HDT's were the new flavour of the month. Like you we were convinced that based on advice from an accountant combined with some personal reading & research HDTs were the ideal struture. And some of us regretted it. Sure they may still be useful in specific circumstances but you may well find down the track like others of us here that keeping things simple can cause a lot less headaches.
Personally I finally get to close down our HDT after this financial year and all I have to say is "good riddance".
Cheers - Gordon
thanks. I don't need to know all the nitty gritty details
My own experience with trusts and tax structures is that it's all about the details. How you plan on using the thing, what exact transactions you do, what money moves from which account, etc. The best expert in the world can't advise you unless you actually have a clear understanding of what you plan to do, which is all in the details. Your advisor can only be effective if they know what you're doing. Do you plan on updating your advisor every time you plan to do anything with the trust?
Alexlee. If hybrids were as dramatic as you say, then why on earth do they exist. Every second person loves to down them so passionately yet they still exist and are frequently used(more then enough to be counted of course
Not dramatic. Merely new, with a lot of unknowns. It exists because some smart people wanted to create a product that would give the best of all worlds: asset protection, negative gearing and income streaming. It exists, like any new product, because someone saw a need and created a product for it. However, it being a tax structure, it needs the blessing of the courts and the ATO. Just because a product exists doesn't mean it'll do what is promised.
Any new product will go through this phase. With time, cases and tax office rulings will clear up a lot of the grey areas. Maybe it'll do most of what's promised, maybe it won't. Until then, you depend on the opinions of tax lawyers, who will have good precedents and cases to argue, and who are confident about their arguments. However, no one knows whether the ATO and the courts will support those arguments or what limitations they might put on them.
Brave, stupid or wise? None of the above, I would say. Confident, certainly, and excited about a new product. But you just have to recognise that there are uncertainties with this.
But then, I'm too paranoid to trust in the experts without understanding a good chunk of it myself.
Careful mark. Agreeing with Dale can get you shot in this thread
seeing professionals can also it seems.You need to brush that chip off your shoulder, reeco. It's weighing you down mate.
Careful mark. Agreeing with Dale can get you shot in this thread
I think you misunderstand. I don't think what Dale is saying is wrong. It is just not as simple as you think.
Yes. I realize that everything in this world ain't as easy as it seems. And those things that are...well I reakon there's something wrong with em...nothing Weighing me down mark..Im already full steam ahead. Plans are in place. It's been good solid info here..either way. I'm making it happen. Fingers crossed I'm not one of the cases that others learn from. Great advice is the best most can hope for. Onward and upward
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Is there anything a unit DHT can do that a normal DT can't Terry? Going off topic a bit...How did the job hunt go in the end also? It was awhile ago..hope it went well?
Well, unit trusts are totally different to discretionary trusts. There are many differences between the two in terms of tax, legal and asset protection issues. A unit holder of a unit trust could borrow to buy an interest in the trust - but this would not be possible for a beneficiary of a discretionary because they have no interest in the trust - just a mere expectancy that they will be considered. This has far reaching consequences in terms of asset protection. Units of a trust are consider property and available to creditors, a mere expectancy in a discretionary trust is not - a bankruptcy trustee would be able to step into the shoes of a bankrupt and be considered for a distribution, but would unlikely get anything. With a unit trust the trustee won't have this discretion.
It took a while, but I have found a job now, thanks.
The answer to all three would be ...it depends. I'm submitting a plan and seeing if it lines up with my goals. If one peace of the puzzle dont fit then I won't pursue. "so far" it looks good. Can't judge a week by a day they say so well see.
What structure do believe is more efficient alexlee? For yourself and/or others on high incomes, with long term goals of improved and continual investment into property? For me the outlook appears to be at least 4 neg geared IPs in the next 2years + a PPOR.
What have you chosen may I ask?
The following is just my thoughts on this. The question is, have you gone through the same thought process? The fact that you think there is a 'most efficient' structure suggests that you haven't thought this through, because there is no ideal structure that is best for everyone. It depends on the asset and your own situation.
If you were in a legally risky job, then a DT would be better due to the asset protection, but you don't get the benefits of negative gearing. For assets that produce taxable income (e.g. low or non-leveraged high div shares), a DT is better especially if you have family who aren't working and you can get franking credits refunded.
Owning IPs in your own name guarantees negative gearing but you lose asset protection. Unit trusts may allow full negative gearing (though there are grey areas with this, and there is no such doubt if you own in your own name), but asset protection may be sacrificed. Redeeming units in a HDT likely involves CGT in your personal name.
Interest capitalisation may be limited if you own the PPOR in your own name but IPs in another entity.
Refinancing an IP to use as deposits for more IPs is simplest when owned in your own name.
If this sounds complex, that's exactly how it should be. It's not simple. It depends on your circumstances, the type of assets you plan on buying and your future situation.
