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HDT issues

Discussion in 'Legal Issues' started by Rafiki, 16th Apr, 2016.

  1. Rafiki

    Rafiki New Member

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    First time poster....so please go easy!!

    A few years ago we (wife and I) made the decision of buying our IP's through an HDT (Hybrid Discretionary Trust). It sounded like magic at the time but we've since learned it wasn't too smart a move. Anyway we have what we have and are learning to put up with the consequences of our poor judgement.

    At present the properties are marginally negatively geared. As they start to be positively geared we were wondering :

    1) Do the income units HAVE to be redeemed?
    2) When units are redeemed what is the process? Do we simply re-finance the loan with the trust now becoming the new borrower of the funds? I assume the trust accounts will also have to be amended. If so how is this shown in the financial reports? Will this be shown as a liability in the balance sheet as technically the income units are bought back by the trust but the trust has no cash?

    A third question but probably not related to the first two. One of the trust properties can be subdivided into 3 strata titles. If we build and retain properties on each lot, does this trigger a capital gains event? If so what are the consequences?

    My apologies if my questions are vague but I am hoping someone on here with a legal / accounting background will clear my confusion and shed some light.
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    @datto - refer to LSD thread?
     
    York and datto like this.
  3. Blacky

    Blacky Well-Known Member

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    Can I ask why you thought it was a good idea to use an HDT in the first place? Who advised you on this?

    Your case is probably far too complicated for a forum and specific legal advice would be reccomended. Speak to someone like @Terry_w to see how to unravel everything at the lowest possible cost.

    Im no expert, but nothing is simple when it comes to HDT's.

    Blacky
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1. It will depend on the deed, but probably not.
    2. Trustee would probably borrow to buy back the units. You would out your loan and can no longer claim the interest. Seek advice on CGT and stamp duty.

    3. Subdividing doesn't trigger CGT.
     
  5. Rafiki

    Rafiki New Member

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    Thanks Terry. Much appreciated :)
     
  6. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    The deed should be reviewed and amended to ensure its compliant with present practices. And you need to ensure you know what that means.

    Redeeming units needs tax advice. It is essential that you adopt the correct process under tax law. However the deed may contradict that. Thats why amending may be required. The amendment must address the basis and formula for amending and determining unit pricing. That would trigger CGT for the unitholder and that cost must be assessed. There could even be duty issues. Refinancing may also need to be explored. Almost no lenders will lend to a HDT trustee and few lend to unitholders too so the old ways are hard to repeat these days. A lender may want to validate the amended deed fits with NOT being a hybrid. (Yes it can be done in some cases)

    Who provided the deed ? MGS, Chan and Naylor, etc....Identifying the deed may assist to identify who can fix it and give advice.

    If you subdiv and build dont sell then no CGT event but a higher cost base that must also be apportioned so future CGT for each parcel can be determined and carried fwd. Beware : Your proposed change to one property may trigger a higher unit value and affect redmeption !! (And CGT)

    Trust accounts cannot and should not be amended.