Hi everyone,
I have just been reading Wealth Guardian and was hoping that someone on the forum might be able to clear up a few questions that I had.
I was left wodering what happens to a trust’s assets after 80 years. I realise that I will probably not be around then but it has got me curious.
The other thing that I was wondering was whether once you have distributed the income of the trust to whatever entity allows the best tax treatment of it, can you then direct that income post tax back into the trust to further develop your empire.
The reason that I ask is that I was thinking that if you did that maybe the government would then further tax you on the money to bring the total amount you were taxed on it up to 48.5% as you have effectively left the money in the trust.
If this is the case, is there any other way of tax effectively reinvesting the income of the trust?
Thanks in advance for any help.
Regards
Anthony
Zimonya
Hi again,
Further to the above, I was wondering if anyone might be able to further enlighten me as to hybrid discretionary trusts.
Do they give you total flexibility in directing operating losses to entities?
Also how much more do they cost to run and set up?
I am trying to work out whether they are worth pursuing at all as surely once you have established enough cashflow for yourself it would be more tax effective to have a balance between a cashflow positive investing strategy and a negative gearing one.
Mind you if you can acheive both good capital gains and cashflow you would not bother I suppose. I need to get stuck in and try.
Once again, thanks for any help.
Regards
Anthony
Zimonya
After 80 years the trust can be resettled and can continue for another 80 years.
The income distributions can be shown as loans, therefore loans can be called back and used inside the trust for future expansion of your empire. Insert good accountant here. This is one possibility.
HDT losses must go back to the unit holders, but your HDT should be running at a profit. The funds are borrowed in your own name, you invest in units of the trust (making the borrowings tax effective) and allowing the trust to use the money as it sees fit.
Costs for a HDT vary greatly. Some charge minimal set up costs and large accounting frre for the back end. Do your research.
Hope this helps
If you want a chat you can e-mail me.CATA
Asset Protection Specialist
[email protected]Dear Cata,
Thank you very much for your help but I am not sure that I fully understand the information on HDTs. I probably need it spelt out really plainly.
Once again, thank you very much for your help.
Regards
Anthony
Zimonya
Hi Zimonya
HDT’s are a complex beast. Operating losses can not be distributed to any beneficiary. Losses must go back to the unit holder(in most cases).
Here are some basice for HDT’s.
You borrow money in your name.
You purchase special income units in a HDT.
HDT then buys property.You can use the intrest on the loan as a deduction against your personal income.
HDT’s are not easy to use and if you are not sure it can cost you alot of time and money to correct any mistakes.
Was your first car a Ferrari? Hybrids are a powerful structure but in the wrong hands it may as well be a Datsun.Hope this helps
CATA
Asset Protection Specialist
[email protected]Dear Cata,
Thanks very much for that, it clears things up a bit more. The reason that I am so interested in them is that I am currently doing mining engineering at university and am in my final year.
I am fortunate in that I should graduate on about $80 000 a year and if possible I do not really want to pay half of this to the tax office. This is why I am looking at Ferraris, but I think that I actually prefer Aston Martins!
Once again thank you very much for your help. I now have to think about things a bit further and then start getting on with it.
Regards
Anthony
Zimonya
Cata,
Just wanted to clarify one point. Even with a hybrid trust any losses incurred by the trust are still retained in the trust and carried forward (provided they meet the trust loss rules). These losses are not distributed to the unit holders as you seem to suggest.
For clients who have purchased a new residential unit and if it is not rented for a period of time then it is indeed possible that a loss will be incurred in the first year as depreciation deductions and capital allowances, etc may be such that they exceed the rent received (particularly if the property isn’t able to be rented out for a period of time). In this case the losses are retained in the hybrid trust and carried forward to the next income year when they can be offset again the gain made at the trust level.
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