Hi people,
I have a HDT scenario. Please tell me at what point/s I've got it wrong.
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Scenario:
Say Millie Smith earns $100k and Billie Smith earns $50k. Their professions share equal risk profiles.
Now, say they want to give $300k to the trust and they want the trust to borrow $300k to invest in the sharemarket. They expect the trust to initially run at a loss, but turn a profit in a year or two. So, they want to distribute the losses to the high income earner, then in due course, distribute the profits to the high income earner.
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Actions:
Millie buys 300 000 special income units at $1 each. The trust takes this $300k, borrows another $300k via the corporate trustee, takes the $600k and invests it in the sharemarket.
At the end of it's first financial year, the trust is negatively geared, and the loss is distributed to Millie.
But at the next financial year, the trust is positively geared. So to distribute the profit tax efficiently, the special income units are redeemed by the trust and distributed discretionally to the low income earner, Billie.
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Is that correct, and if so, did Millie have to pay any tax on the selling of her units back to the trust? This is confusing stuff...
Thanks,
Glebe.
I have a HDT scenario. Please tell me at what point/s I've got it wrong.
----------
Scenario:
Say Millie Smith earns $100k and Billie Smith earns $50k. Their professions share equal risk profiles.
Now, say they want to give $300k to the trust and they want the trust to borrow $300k to invest in the sharemarket. They expect the trust to initially run at a loss, but turn a profit in a year or two. So, they want to distribute the losses to the high income earner, then in due course, distribute the profits to the high income earner.
----------
Actions:
Millie buys 300 000 special income units at $1 each. The trust takes this $300k, borrows another $300k via the corporate trustee, takes the $600k and invests it in the sharemarket.
At the end of it's first financial year, the trust is negatively geared, and the loss is distributed to Millie.
But at the next financial year, the trust is positively geared. So to distribute the profit tax efficiently, the special income units are redeemed by the trust and distributed discretionally to the low income earner, Billie.
----------
Is that correct, and if so, did Millie have to pay any tax on the selling of her units back to the trust? This is confusing stuff...
Thanks,
Glebe.