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HDT and shares

Discussion in 'Accounting, Tax & Legal' started by ionic, 6th Jun, 2008.

  1. ionic

    ionic Member

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    I have a HDT with 2 properties. The HDT issued units to me so I can negative gear for those properties.

    I am thinking of investing in shares with the same HDT. Will this mix things up? Will this cause the HDT not able to distribute the gains from the shares when it sells off the shares? I heard someone said if the HDT issues units to a person, then all the assets are subject to capital gains tax for the person........

    Will it be better for me to set up a pure Discretionary Trust to trade shares?
     
  2. Redwing

    Redwing Well-Known Member

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    Shouldn't be a problem having some income tip into the Fund and may even be beneficial?

    Maybe NickM can assist re this query?
     
  3. ionic

    ionic Member

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    what im unclear of is, if when the trust sells the shares, does the capital gains go to me (since i hold units in the HDT for the properties) and I have to pay cap gains tax?
     
  4. Rob G.

    Rob G. Well-Known Member

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    If the Trustee sells the shares then the net capital gain is income which is normally attributed to the unit holders.

    What is REALLY interesting is when the Trustee redeems the units WITHOUT disposing of the underlying trust property.

    e.g. When a HDT ends up with positively geared property and now wants to hold it for discretionary beneficiaries - there will be some severe headaches all round !!

    Cheers,

    Rob
     
  5. ionic

    ionic Member

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    does this mean im better off starting a Discretionary Trust and hold/sell my shares there.

    And just leave my Hybrid with the 1 property in it for my own negative gearing.
    When I started the HDT, i actually didnt know that u personally get hit with CGT when u sell. I always thought u can negative gear now, and then in future years u can distribute the income to beneficiaries, and if u sell, also distribute the gains.

    Now im thinking probably Discretionary trust is better.

    But i guess HDT is better than buying negative gear property in your own name in that u can distribute positive rental income later.....
     
  6. Rob G.

    Rob G. Well-Known Member

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    Some people prefer to set up separate trusts for separate assets/activities for asset protection. Just weigh up the costs versus the risk/insurance.

    For instance if your tenant sues and your insurance does not cover you, then recourse might be limited to only the assets the trust holds.

    You need to crunch the numbers whether the personal negative gearing on HDT units plus avoiding stamp duty is better than the potential double CGT hit on units. One CGT event when your units are redeemed and one CGT event when the Trustee eventually disposes of the property.

    Factor in future interest rates and personal tax rates/brackets - of course along with future property values and rental yields during the time units are issued.

    Cheers,

    Rob