Hi all,
I would like some advice on the following senario and if this is legal.
IP purchased for $500,000.
Personal contribution of $100,000 to the trust in the form of a gift.
Bank loan $400,000.The IP will be in the name of the trust and units are issued to 2 unit holders worth $400,000. Loan interest will be claimed as a deduction by the unit holders for the purchase of the units.
1. Since the unit holders only own 80% of the IP, will the Trust only distribute 80% of the net profit to the unit holders and the other 20% to the trust’s beneficaries.
2. If the above is valid claim then will the portioning affect the deductions eg. depreciations and land tax… etc.Your response will be appreciated.
What you have described is rather rambling and i think you are a little confused but I know what you are suggesting and it can be done if set up correctly.
Alternative would be to purchase as Tenants in Common with a 80/20 split in the interests held 80% – HDT 20% you personally.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
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Hi Thai
With a HDT, it is the trustee that owns the property. The unit holders own units in the trust. If the unit holders borrow to buy their units, they may be able to claim the interest on their personal income. But it seems this is rather uncertain at the moment.
I think the unit holders will be able to claim the whole of the interest (subject to the uncertainty with the ATO). To justify their interest claims they must get an income from the trust. This may be in proportion to the value of the units compared to the asset. This would change over time too I suspect.
But with the other expenses, these are expenses of the trust. It is the trust that claims depreciation, land tax etc. These deductions are taken away from the rent. Because the trust is not paying interest it should have a profit and it is this profit that is distributed to the unit holders and/or beneficiaries.
(I am not an accountant nor do i use a HDT, this is my understanding of what happens and may be wrong)
Terryw
Discover Home Loans
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I have another question and sorry for rambling.
If the unit holders in the future decides to sell back the units to the trust.
Would the unit be sold at the same price?
If there was CG in the IPs can the trust distibute the funds to other beneficaries or only to the initial unit holders.?I would like to clarify “other beneficaries” as being family members.
Originally posted by thai:I have another question and sorry for rambling.
If the unit holders in the future decides to sell back the units to the trust.
Would the unit be sold at the same price?
If there was CG in the IPs can the trust distibute the funds to other beneficaries or only to the initial unit holders.?That is another area of dispute. And it would depend on the drafting of your deed.
I would say the units would have to increase in value as the proeprty increases. If not, then there would be no commercial point in buying them. If there is no commercial reason then the ATO may consider it a scheme designed soley to reduce income tax.
There are different ways to value the units. Which way you use may also be stipulated in your deed. One way is for the units to increase in value in line with the property. Another is to use the cashflow from them to value them, Net Present Value I think it is called.
Once the units are sold back, the trust should behave as a normal discretionary trust and then the income and CG can be distributed to the wide class of beneificiaries at the trustee’s discretion.
Terryw
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Originally posted by thai:I would like to clarify “other beneficaries” as being family members.
Hi Thai
Not sure what you mean here?
The beneficiaries of a trust usually include the principle’s extended family members include those yet to be born or yet to be married into the family, other companies and trusts which you are involved in etc.
Terryw
Discover Home Loans
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Thanks Terry
I’m from Canberra, can anyone tell me if stamp duty is payable on the purchasing of units from a hybrid trust and also when the trust redeem the units back from the unit holder?
I don’t think there are any stamp duty issues when transfering income units with a hybrid trust.
Terryw
Discover Home Loans
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Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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