Unit or not for HDT?

[Jasmine]

We just set up a new Property investor trust through Chan & Naylor few months ago, and are going to start our property investment soon.
I read lots of articles, and know that our trust is one of the HDT, I also notice about the TD 2009/17 and read some discussions in the forum, but I cannot find any article discussing the situation like ours in HDT, so can someone check for me whether my understanding below is correct? we also want to make sure that we do the right thing(structure) before start to deal with bank for the loan issue. Our situation is as follows:

**Both of my husband & I are employees of different companies, with similar annual income (at same tax rate for individual tax)
**Our investment policy is buy & hold

Assume that the investment property we are going to buy is $400,000; and we borrow $300,000 from bank (under both of our personal names) to purchase $300,000 units from Trust, and contribute $100,000 from our personal savings. Assume that the annual profits for the property (rental minus all expense) is $12,000. Then, I believe for three of forth, i.e. $9,000 have to allocate to the unit holder (50% to my husband, and 50% to me), but I think for one of forth, i.e. $3,000, I can give it any of beneficiaries as I like (for example, give to my mom, she is retire now with no income at all) to minimise tax. Is it correct? (What I want to know for the point is that "is Discretionary trust & Unit trust can be exist at the same time in a HDT?)

If above concept is correct, then how we are going to "call" for the $100,000 paid from our savings? is it gift to Trust? or our personal loan to trust? How we should do it on accounting-book-entry for our trust account?

Regarding to the issue of TD2009/17, I saw most people in the forums just suggest people buy investment property under their own names, so in this case, maybe it is better for us to just use our HDT as a Discretionary Trust at all, i.e not issue any unit at all) If this is the case, how we should do for the loan? borrow under the Trustee's name (the trustee is a company) or under the Trust's name? or any advice?

P.S. I know I should ask our accountant (I will, of couse), but just would like to hear some advices or opinions from some experience investors who ever used HDT like you guys first, so that I know what kinds of key questions I must to ask him at meeting. Because their charge is quite expensive, so I want to make sure I ask the right questions and get the right answers. Besides, experience from others is also a powerful knowledge for us as well!
Thank you very much in advance.

 

[Qlds007]

Irrespective of what your Accountant tells you I suggest your first port of call should be your Mortgage Broker or Banker.

There are very few lenders (off the top of my head i can only think of 3) that will lend where an HDT is involved so financing the deal maybe more of an issue than you think.

 

[Rob G.]

Did you discuss your intentions to positively gear an property with your Advisor when a HDT was recommended ?

Cheers,

Rob

 

[Jasmine]

Irrespective of what your Accountant tells you I suggest your first port of call should be your Mortgage Broker or Banker.

There are very few lenders (off the top of my head i can only think of 3) that will lend where an HDT is involved so financing the deal maybe more of an issue than you think.

Thanks for your advice, I do heard a lot that it's difficult to find lenders for HDT; however, I believe still few lenders can do it. I would concern more in putting the structure properly, i.e. whose name(s) should be put for loan? Should we borrow by personal name(s) or under trust?!

When I bought my PPOR, I just listen to my broker's recommendation, did not search for other advices, but now I regret for the choice of loan for my PPOR. Because at that time, I did not know anything about "Offset account". Now I know that I should have an offset account for my PPOR loan, but my lender doesn't have this, which make me loss a lot in interest. Because though my loan have the "redraw" function, there is a condition that we can't redraw within the first three years. So even I now have some saving, I can't put in to the loan to repay the debt because we plan to buy the investment property soon. For this reason, this time, I hope that I can get more advices from different sources, so that I can be better sure that I won't get the wrong recommendation or advices, and make the wrong decision again.

 

[Jasmine]

Did you discuss your intentions to positively gear an property with your Advisor when a HDT was recommended ?

Cheers,

Rob

Yes, they said if it is positive gear at later years, just distribute the profit to other lower income family members, like parents or child.
And we also think that once our passive income increase, both of us may change from full-time workers to part-time to get more time to accompany our child or do some business by ourselves.

 

[Rolf Latham]

The PIT appears to have better flex for financing in that we dont need to have the borrowings in personal names, with a gaurantee and mortgage from the corp trustee.

There is capacity within that structure to still claim gearing even with the corp trustee ATF as borrower.

How or why, I cant comment, but im told this is the case

ta
rolf

 

[turk]

Hi Jasmine

As there is a lot a disagreement about the tax liabilities/benefits of HDT's why not
get Chan and Naylor to apply for a private ruling from the ATO for your trust?

That should give you more peace of mind.

Cheers

Pete

 

[Terryw]

Its complex and the deductibility of the interest, if units are issued, will depend on the wording of the deed and the way it is set up.

as for the $100,000 this can be a gift or a loan to the trust - each has advantages and disadvantages and which way you should go will depend on your situation.

eg. if you are borrowing the $100,000 (eg from a LOC) then you may want to consider lending it to the trust so that the interest can be claimed.

if you have $100,000 cash sitting around you may want to gift it to the trust for asset protection reasons.

And, watch out if you are considering distributing to mum as there are various rules with Centrelink whereby the could class the trust assets as her own personal assets and this may make her lose the pension or other entitlements.