Its a complex area with many accountants not even understanding things. I don’t use a hybrid, so have not really looked into these closely.

I think many will fail because there are some crap deeds out there, and some people or their advisors are not using them in an acceptable manner. eg all the tax deductions claimed by the individual on the higher income and then having the trust income distributed fully or partially to another person – the lower income person(s). They then get the trust to redeem their units at what they were initially valued at a few years down the track. I don’t think the ATO would be too happy about this.

A unit trust is like a company but different in a few ways. Companies are better for the limited liability aspects. Trusts are good because of the privacy aspects – the unit holders names and addresses are not publically available like with companies. ASIC doesn’t not administer trusts either and there are no annual fees either.

I think HDTs are good because they can allow negative gearing benefits in the early years when a property may be costing money to hold and later it can act as a discretionary trust giving tax benefits when rental income increases.

Terryw
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Hi

Having a discretionary trust provides good protection for the assets held in trust. However, having a trust does not help with borrowing any extra. Lenders do look at credit reports and take personal incomes into account in servicing.

Insurances are good to have, but they won’t always cover you. eg. The case about the person playing golf who accidently hit someone with a ball. insurance didn’t cover him because it was a charity game.

Or what about if you have a small business and someone owing you a lot of money goes bankrupt, leaving you with a huge loss from which you cannot recover.

Terryw
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Hi CJ

FHOG is administered by the States. The ATO may have different criteria.

see
TD 51
Capital Gains: What factors are taken into account in determining whether or not a dwelling is a taxpayer’s sole or principal residence?
http://law.ato.gov.au/atolaw/view.htm?locid='CGD/TD51/NAT/ATO‘

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Hi Dave

I think the hybrids actually work more or less like a unit trust until there is enough growth to enable the units to be redeemed and from then on it reverts to the discretionary.

Each deed is different and the distributions etc have to be done in accordance with the deed, keeping in mind the tax regulations etc.

The ATO is looking at hybrids apparently and rumour has it that many will fail.

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Yes I have been looking at managed funds lately. Some have returned above 76% pa in the past year. Some have even returned 26% pa on average for the last 7 years.

I am begining to think these are better than property – no stamp duty, no land tax, good liquidity etc and you can margin lend some funds at around 50% LVR.

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Yes I would say it is very dangerous in setting up your own hybrid trust deed unless you know what you are doing. Spend $500 extra and get some peace of mind.

eg. how many units to issue, who will be unit holder, trustee, who to include as named beneficiaries etc.

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It depends who the trustee is. If the person borrowing the funds is trustee, then I think most lenders don’t have a problem with it. If a company is trustee and the loan needs to be in the name of an individual, then it gets more complicated and not many will do it.

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I don’t think that is necessarily always true. Laws and procedures differ from state to state, so a NSW solicitor may be unfamiliar with the happenings down there in VIC. (But no doubt some based NSW solicitors would have been admitted in VIC)

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Hi G

It won’t be easy to get a loan based on valuation as it is a transfer between related parties. In fact, I think it will probably be impossible as your original loan must have been 90% LVR.

Lenders are also aware of the drop in Sydney values, so even if you could find a lender that did not send a valuer out, they would still likely do a comparable sales search.

Sorry for the bad news.

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I have been writing a newsletter for about a year. Just send me an email to join. I’ve been a bit slack, and busy, the next one is due out now and I am still writing it.

Terryw
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