Why don't big firms sell HDTs?

Hi,
to continue this, I will also add that many people purchase just an income stream with the understanding that there is no capital growth involved. ie I buy and annuity from an insurance company for $10,000/year for 20 years and it costs me $150,000 the insurance company has just chucked your money into an interest bearing deposit and at the end of the 20years they are hoping that it has earned enough interest to cover their liability, they still have the CG on the rental property that they chucked your money into and you are not entitled to it.

So why can't people just invest in my trust for the rental returns and the possible future growth of the rent on that investment and have no claims to any CG

I am just trying to open up the thinking here to see if it happens elsewhere, that people do invest for income stream only and not CG so why can't that apply here?

cheers

Norman
 
Yes, annuities - a managed investment product that is a good example for what the SIU holder is doing here with the HDT. The 150k lump sum cost is like your negative gearing loss each year, and, you get a guaranteed income stream with this (?inflation hedged), but no capital growth/gains in this case. Don't think the 150k bit is tax deductible though, but maybe there are some tax advantages to it? (I don't know much about annuities) - so maybe it is less likely to be considered a tax-minimisation scheme than what the SIU holder is doing with the HDT here? Perhaps if it is related to your superannuation fund, there is less or no tax on the income stream...(again, I don't know much about this stuff...)? Actually, is all income from annuities tax-free or tax-advantaged in some way???

GSJ

Hi,
to continue this, I will also add that many people purchase just an income stream with the understanding that there is no capital growth involved. ie I buy and annuity from an insurance company for $10,000/year for 20 years and it costs me $150,000 the insurance company has just chucked your money into an interest bearing deposit and at the end of the 20years they are hoping that it has earned enough interest to cover their liability, they still have the CG on the rental property that they chucked your money into and you are not entitled to it.

So why can't people just invest in my trust for the rental returns and the possible future growth of the rent on that investment and have no claims to any CG

I am just trying to open up the thinking here to see if it happens elsewhere, that people do invest for income stream only and not CG so why can't that apply here?

cheers

Norman
 
NormH said:
So why can't people just invest in my trust for the rental returns and the possible future growth of the rent on that investment and have no claims to any CG
Doing it's not the problem, it's borrowing money to do it and trying to claim an interest deduction that raises issues.

If the ROI was less than the loan interest, and there was no chance of capital gains, why would you do it? Especially if you also followed the idea that income can be apportioned based on the ratio of price paid to current value, since then rent wouldn't go up at all on average. It would be like borrowing at 8% to invest in a term deposit at 6%. I don't think the ATO would be happy allowing a 100% interest deduction for that either.

However, if all rent was distributed to the unitholder, irrespective of appreciation in market value, then yes, the investment might eventually become CF+. But I'd still have to ask, why would I give you enough money to buy a property so you can just give me the rent and keep the capital appreciation, when I could buy the property myself and get both? (unless perhaps I thought property prices were about to crash :D)

GP
 
But I'd still have to ask, why would I give you enough money to buy a property so you can just give me the rent and keep the capital appreciation, when I could buy the property myself and get both? (unless perhaps I thought property prices were about to crash :D)

GP
Yes, I agree, and am still waiting to hear some convincing arguments otherwise...

GSJ
 
Mry said:
In that case, isn't it kind of like a bank account, where you put in $100,000, get $5,000 in interest deposited into a different account and then shut the account down by withdrawing the $100,000 (meaning no capital gain or loss)?
My concern about how the ATO would consider the redeeming of units before the asset sale wasn't specifically about the redemption, but rather about the allowing of an interest deduction prior to that with the possible expectation that the income forgone might be made up with CG later - something that wouldn't happen in this case.

A similar thing might be borrowing money at the start of a financial year to buy units to purchase some assets, then redeeming the units on June 29th so that all income could be discretionally distributed (no unitholders on June 30th), then repeating the process starting a couple of days later. I'm inclined to think the ATO might class that as a scheme, and really it's just a shorter-term version of the real estate capital gains scenario being discussed.

Cheers,
GP
 
Financial Sense...

Just another comment...I appreciate that the trust deeds are carefully prepared, but, just because you put something in a trust deed doesn't make it all legitimate, especially if it doesn't really make any financial sense - surely the ATO will see through this as perhaps being artificial and contrived.

So then, if you at least put wording in the trust deed to make the whole setup (ie. in this case the SIU holder buying SIU's that are invested in residential property that is negatively geared for the SIU holder) sound more logical and financially sensible, then isn't that going someway to making the whole thing more legitimate...???

In this setup, for the SIU holder to not have any rights to capital just doesn't make any financial sense to me...???

Comments, please...???

GSJ
 
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If redeeming occurs at a price above the cost of the units, and before a sale of the property, then doesn't the trust/'you' have to effectively increase borrowings for this to occur?
Just quoting myself here! I might be having this discussion with myself now, with more questions than answers, but anyway - can someone answer this question posted above previously???

Doesn't this leave 'you' in an worse overall position cashflow wise as the trust now has a bigger interest expense, compared to the SIU holder's interest expense previously???

Thanks,

GSJ
 
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Just an aside, are there any lawyers on this forum who could comment about the HDT from their point of view??? There is an accountants' view bias to HDT's on this forum I think.

GSJ
 
Why the silence?

Silence...

I must admit that the lack of direct answers/replys to some of the key questions regarding the HDT posed earlier, and recently, in this thread, is a bit unsettling...

Is this still a valid/worthwhile/legitimate structure for those who are negative gearing with IP's???

I sure hope so...but, as yet, am not at all convinced...

My search through old HDT posts hasn't revealed any more answers...

GSJ
 
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GSJ,

The reason I am not replying to the multitude of questions is that it requires an explanation of trust law and the concept of income for trust purposes and income for tax law purposes, Section 95, Section 97, Fletchers Case, Munros Case, Total Holdings Case, BCD Technologies Case and some more recent case law on interest deductibility. The aspect of commerciality is also something that is coming under review and in fact a favourable outcome was achieved by the taxpayer in BCD Technologies in respect to management fees.

GSJ a lot of your posts in this thread are at 3:50 AM -6:00 AM. Well I was asleep as were probably most people and that's why you get the silence. Other people are frantic with Christmas and busy with our paying clients. Remember this forum is free. I don't come here every day and I don't post here every day. Heaven forbid sometimes I even go out and have fun.

I just don't have the time and am planning for Christmas and personally would rather spend the time with my clients who pay for this time. It would take me many hours to respond to a lot of these questions.

May everyone have a great Christmas.
 
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Just quoting myself here! I might be having this discussion with myself now, with more questions than answers, but anyway - can someone answer this question posted above previously???

Doesn't this leave 'you' in an worse overall position cashflow wise as the trust now has a bigger interest expense, compared to the SIU holder's interest expense previously???

Thanks,

GSJ
Yes and no. The trust ends up paying more interest than you did previously, but you (the individual) gets the higher than cost proceeds too, to do as you want.
Alex
 
Hi Coastymike,

I work night shifts so that is why my posts are at this time.

I am not all surprised with your reply.

Just mention a few laws, concepts, sections, cases and then leave all the pertinent questions unanswered and dumped into the 'too hard for the layperson to understand basket'...Good luck to anyone who just accepts this...Remember...this is accounting/tax/finance/law - not theoretical physics or neurosurgery...

If your smart paid clients asked you these questions, are you going to sit with them for several hours trying to give them a satisfactory answer??? Do you think they will have the time or interest to sit and listen to you for several hours trying to get straight answers to very obvious and clear, but important, questions that may significantly affect their financial position??? Or would you tell them it's too hard to explain, they wouldn't get it anyway, leave it to the professionals, and more importantly, you need more time to wrap your Xmas presents???!!!

Give me a break.

I'm trying to encourage a positive and constructive discussion, on a forum that we all know perfectly well is free, your comments add little to this...

Post at your convenience or not at all, whatever suits you...

GSJ


GSJ,

The reason I am not replying to the multitude of questions is that it requires an explanation of trust law and the concept of income for trust purposes and income for tax law purposes, Section 95, Section 97, Fletchers Case, Munros Case, Total Holdings Case, BCD Technologies Case and some more recent case law on interest deductibility. The aspect of commerciality is also something that is coming under review and in fact a favourable outcome was achieved by the taxpayer in BCD Technologies in respect to management fees.

GSJ a lot of your posts in this thread are at 3:50 AM -6:00 AM. Well I was asleep as were probably most people and that's why you get the silence. Other people are frantic with Christmas and busy with our paying clients. Remember this forum is free. I don't come here every day and I don't post here every day. Heaven forbid sometimes I even go out and have fun.

I just don't have the time and am planning for Christmas and personally would rather spend the time with my clients who pay for this time. It would take me many hours to respond to a lot of these questions.

May everyone have a great Christmas.
 
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Hi Coastymike,

If your smart paid clients asked you these questions, are you going to sit with them for several hours trying to give them a satisfactory answer??? Do you think they will have the time or interest to sit and listen to you for several answers trying to get clear answers to important questions, that may significantly affect their financial position??? Or would you tell them it's too hard to explain, they wouldn't get it anyway, leave it to the professionals, and more importantly, you need more time to wrap your Xmas presents???!!!

Give me a break.
Fine. You can pay Coastymike the couple of hundred dollars an hour his clients pay, and Im sure he will devote his time 100% to you.

You're asking for detailed investment advice, then complaining that someone dares to devote their time to paying clients rather than you (who expects the same advice for free).

Have you actually sat down with your own accountant for an hour or two and gone through your questions, rather than posting the same things over and over on here, then complaining when people dont drop what they're doing to answer you?

Jamie.
 
You're asking for detailed investment advice, then complaining that someone dares to devote their time to paying clients rather than you (who expects the same advice for free).
Jamie.
Sorry Jamie and Coastymike, I re-read that particular paragraph I posted, that Jamie refers to here, and it didn't quite make sense or come out how I wanted it to...

But firstly, Jamie, if you read this thread, I am not after 'detailed investment advice' at all. I am interested in the differing interpretations/opinions of the use of the HDT, and felt that this forum/thread would be a great starting point for this discussion.

And, some answers/thoughts/comments regarding some now blatantly obvious questions regarding potentially major flaws of the HDT (ideally from different people of different professional/investing backgrounds) - which proponents of the HDT don't seem to want to give a clear reply on, but rather conveniently seem to side-step with vague or un-related answers, excuses, or nothing at all. If you're going to paint a pretty picture of the HDT on this forum, as many have - be prepared to take critical comments and defend it, rather than saying it is too hard , complicated or would take too long to explain or you wouldn't get it anyway; that is a very unconvincing argument...that is what I was trying to say...

I am not interested in paying Coastymike at this stage, as it sounds like it would be too expensive for me, given my multitudinous questioning, though I am sure his time would be worthwhile. I will certainly pay my own accountant and other professionals for any advice, if and when it is appropriate for me, but for now this is not necessary - so, I am happy to see what ideas this forum can offer instead. But, apologies if I am being pushy or impatient in my posts - I am just trying to squeeze the most out of this thread!

I am not interested in arguing these sorts of things further - as I think they will needlessly take this thread off track (as can often happen), and it has been very, very interesting thus far. I have certainly learnt a lot from it.

Just here to ask the tough questions, find answers, learn a bit more, and hopefully in the process make this forum a better resource for others too. If you find my persistance with these HDT issues frustrating - tough cookies!

I think I have said enough about this topic and will, more patiently perhaps, wait and see if anyone else has any other ideas they wish to contribute - for free of course!

GSJ
 
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GSJ,

Some of my paying clients who do want to learn more do spend the money to sit down and go through the concepts. One of them actually enjoys spending the money to debate various concepts and enjoys playing devils advocate.

So the answer is yes I would spend the time with them. You are asking valid questions but some of the answers will require an explanation of the underlying concepts of trust law. To me this forum isn't the basis for this type of discussion. You are not purchasing anything from me so I don't feel the need to justify anything. In fact I only deal with one person on this forum and they are lovely to work with. If you don't like hybrid trusts and cannot be satisified by the answers provided by your professionals then do as Julia has said adopt other strategies e.g. salary sacrificing your partner's interest payments, holding the asset in your own names, etc.

I provide a bit of time for free to this forum to provide some basis thoughts on my interpretation of things. In fact i've enjoyed my time here but this will my last post. As Dale has always said have fun.
 
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coastymike said:
but this will my last post
An unfortunate loss to the forum.

IMO, yours have been amongst the most informative and well-thought-out posts on the forum, and while perhaps not amongst the most prolific, certainly amongst the most valuable.

So many thanks for your contributions so far.

Cheers,
GP
 
I'm hoping there's a qualifier missing...

G'day Coasty,

Like others, I've appreciated your input to this forum for some time now.

I'm hopeful that this statement (below) might be missing a qualifier...
CoastyMike said:
I provide a bit of time for free to this forum to provide some basis thoughts on my interpretation of things. In fact i've enjoyed my time here but this will my last post.
By that, I mean :-
- this will my last post (in this thread)
- this will my last post (for this year)
- this will my last post (today)
- this will my last post (until Australia wins the Ashes)
- this will my last post (........ insert comment .....)

Well, I'm HOPING there's a qualifier missing.......

Regards,
 
HI

Our office policy is a reasonably conservative one..... if there are units on issue then the trust income (including any CG) MUST be distributed to the unit holders.
Hi Dale, does your office policy have exceptions to this rule? For example, with Capital Gains aside, what if you had $100K special income units issued but the investment was initially purchased for $200K ($100K using funds already in the trust).

Do you think it is reasonable to only distribute half of the income from this $200K investment to the SIU-holder and distribute the other half to the discretionary beneficiaries?

Just curious. Ebbie.
 
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