Hi Ptn

I am in Thailand atm, so cannot look thru my files. From memory he did not have a company as trustee, just himself. I will send Bankwest an email to see if anything has changed.

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Redwing, yes very true. I have seen one client with a hybrid trust, but the loan was in the wrong name – they didn’t know what they were doing, didn’t understand how the trust operated, and their broker didn’t either, so they got the loan in the wrong name. Don’t know how they ended up at tax time.

Also seen 3 clients who had purchased ppty 3 years prior using a unit trust and each holding a discretionary trust to hold their units. Would have been very expensive to set up. But the title of the property was in their individual names, not the corporate trustee. Their solicitor stuffed up, and they didn’t know, and had been lodging tax returns for 3 years as if the ppty was owned by the trust.

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Buy one under valued property for cash. Do it up a bit. after a few weeks mortgage this ppty, and repeat.

eg. $80,000 ppty. clean it up, values at $100K. get a loan of $80,000 and you still have all you money that you started with – less costs etc.

But i would be inclined, myself, to get a good high growth property.

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Must have been some sort of fraud or criminal behaviour involved?

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Ptn, You will have to check with an accountant about the units.

Many banks don’t like hybrids. The main problem is the title and loan are in different names with corporate trustees.

From memory, Bankwest have done 95% for one of my clients with a hybrid trust.

Do you need a company as trustee? You need to assess you risk tolerance. A company would protect you more if the trust has a problem and is sued. This can happen if investing in business or property, but not if investing in shares only.

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Hi Carlin

Sounds like your accountant hasn’t heard of hybrid discretionary trusts.

These are a discretionary trust with a unit component and effectively allow negative gearing to occur.

What you do is get the loan in the unit holders name, not the trustee (but they could be the same). The unit holder borrows money to buy the units, not the property. The unit holder then claims the interest on the loan. The trust makes a profit (cause the major expense of a loan interest is not there) and this profit is distributed to the unit holder. This will usually not be enough to cover the interest, so the unit holder has a loss which they can claim against other income.

Once the rent increases and the property would be positive geared, the trust could borrow money and buy back the units. This money would be for investment purposes, so the interest would be deductible by the trust, and you can use the funds to pay down non deductible loans.

Sound good?

If you accountant doesn’t beleive this is possible, it may be worth asking elsewhere.

There is an article in the latest Bantacs newsletter on these trusts. see http://www.bantacs.com.au

Even if you have no beneficiaries now, there will be advantages – such as the refinance principle (borrowing to buy back the units) and asset protection. And, circumstances change, so you never know, you may acquire some beneficiaries at a latter date.

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PTN, I think you may have misunderstood Dale GG? Maybe he was recommending a corporate trustee for your situation.

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I think they both use the same deeds. The difference is probably Dale has quoted to include a company as trustee.

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You cannot pre pay interest with a LOC. It needs to be a fixed loan. WIth a LOC the interest is charged monthly, so any payment made in one lump sum will just go off the outstanding balance, and then each month interest will be added – and capitalised if you do not pay.

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