Repayment of money loan to the Hybrid Discretionary Trust (HDT)

[The Project Mgr]

Hi folks,

I used my own funds to pay for the 20% deposit of the property purchased in the HDT and for the purchase costs, I took out a loan to purchase the income units that make up the 80% of the property price.

eg, IP price = $500K
purchase cost & stamp duty = $30K
My funds = $130K
Loan from bank = $400K

If I lend the $130K to the HDT interest free, can the HDT use all of the rental income to repay me?

eg, Rental income = $20000 per year

So instead of distributing the $20000 rental income to me as a Special Income Unit holder, can the trust use the rental income to repay its loan to me ?

Kind regards,
PM

 

[Rob G.]

Judging by the title of your thread, you paid these expenses on the understanding that the Trustee would reimburse you ?

I also presume that this was not an arm's length loan on commercial terms (i.e. unsecured with no interest payable) ?

Is that correct ?

Cheers,

Rob

 

[The Project Mgr]

Judging by the title of your thread, you paid these expenses on the understanding that the Trustee would reimburse you ?

As the HDT has just been set up, there are no available funds to pay for the 20% deposit + purchase cost. Hence, I loan the HDT this money with the expectation that it be repaid.

I also presume that this was not an arm's length loan on commercial terms (i.e. unsecured with no interest payable) ?

Yes

 

[Pat]

To PM,

24.5% of any profit of the trust's rental statement will be available for discretionary distribution and the remaining 75.5% of any profit will be required to go to the Unitholder.

Likewise any future Capital Gain on that property would be distributed 24.5% discretionary and 75.5% to the Unitholder.

When units are issued equal to the value of the initial loan in the unitholder's name then this portion of income and capital gain must be distributed to the unitholder.

You cannot stream the revenue at your discretion

Cheers Pat Mannix ( PM )