These days I don't think there are many accountants recommending HDTs – in fact most are saying to avoid them I think.

A testamentary trust is one which is established after you are dead. Great for future planning – just not your future. With income from a testamentary trust kids can earn income and be taxed at adult rates, not the penalty tax rates that normally apply to kids. Your assets don't actually pass to them, but remain in the trust and this can help asset protection if they go bankrupt or divorce etc

And what is the definition of "domestic relationship"?

In NSW spouse refers to married partners and defacto partners living together
http://www.austlii.edu.au/au/legis/nsw/consol_act/fhoga2000250/s6.html

So if you are engaged to marry and are not living together you should still qualify.

Please check the legislation in your state.

What about Bankwest's rate tracker, it is even lower for the first 2 years and then reverts to a higher rate, but no DEFs.

Hi Daniel

Hybrid trusts don't really work in any meaningful way.

1. Setup costs can be much cheaper. It costs $400 to set up a company with ASIC and a trust deed can be $600+ (+ stamp duty). Running costs: If a trust has just one property then the tax return for this trust should be very cheap. Many accountants charge you a fee per property, so it shouldn't really cost  you much more than owning the property in your own name. ASIC has a yearly fee of around $220 for the annual report – with some accountants charging you a fee of $200 just to post this in! So running costs need not be too much for a trust.

2. With a HDT you would borrow to purchase income producing units in the trust. The tax deductibility of these borrowings would depend on the commerial prospects of getting an income from these units. It seems the ATO will only allow the interest to be claimed if the unit holder must get all of the income and capital gain from the property. If there is any discretion, then full deductibility won't be possible. That means your HDT must act like a unit trust until the units are redeemed by the trustee.

Depreciation goes to the owner of the property which is the trust in this case. But since interest is the biggest expense your trust should be running at a profit if you can personally claim the interest. The profit can be offset by the depreciation.

3. There is little or no asset protection in a HDT as the units are property and could be taken by creditors if you were to go bankrupt. There have been deeds worded so that the units become worthless if the unit holder were to go into bankruptcy, but this may effect the deductibility of interest argument if the trustee has discretion here.

I agree with others above, you should look at avoiding HDTs or getting independent legal advice from a tax lawyer about using a HDT. Using a discretionary trust may be the way to go, as Richard mentioned. Low rates will mean less of a loss and with rising rents the property will be positive income soon.

HDTs have problems with finance because the owner of the property and the borrowers are usually different. If the trustee and the unit holder/borrower is the same it should be much easier.

It would depend on how much money you are going to have sitting around. If you have a bit then you could tax interest on the offset. You could save the same amount of interest by putting the money into the loan and using redraw later – but you will run into large tax issues down the track – so you need to work out how much interest you would save vs how much extra tax and problems you would create.

I would also recommend IO loans too.

If  you are creating an ABN for borrowing purposes, then you will need GST registration too – If you need to declare over $75,000 pa income. You will then need to lodge bas statements which is a pain.

If your 'business' is not creating an income the ATO will cancel your ABN after a while too. However you can get around this if you have a good reason.

I do all my own tax myself, but I have sent a few client's their way. Mike there has an excellent understanding of trusts and tax and he used to post on this forum,

Sounds like you didn't agree on a price at the begining and left it open ended. Maybe just remind them they said $600 max.

They may have to get a job!