redemption of special income units in HDT

Hubby and I have been arguing about the consequences of redeeming special income units in HDT. Our trust was set up based on the Macquarie Group Services deed (Chris Battens model). Hubby being the high income earner borrowed money and bought special income units in the trust, the trust bought a property etc.

Now we want to sell the property. This means that hubby will need to redeem the special income units relating to the property in the trust. The trust deed has a clause which allows the special income units to be redeemed at "par" value - ie same value as when the units were bought in the trust. However, an accountant told us that we have to be careful because the ATO would raise eyebrows on this "par" redemption, and the redeemed value should be adjusted (increased) to at least CPI.

Hubby is very worried and thinks that if this were the case then there was no benefit for us to have properties in the trust.

Appreciated any views / comments on the above. Has there been any change to the "par" value redemption to the special income units in the HDT deed? Many thanks.

 

Hi PTHM,

Why don't you go back to whomever you got the original deed from? They should be able to sort it out easily enough.

Cheers,

Dan

 

Absolutey agree Dan ...

If redeeming units at non-commercial (market) rates then this might indicate that the whole scheme is maybe for a purpose other than gaining your assessable income.

A typical 'worrying' scheme invoves the income units being redeemed at below fair value and sharing the trust capital gain amongst other low tax rates beneficiaries.

CAUTION is necessary.

Cheers,

Rob

 

Thanks, Rob and Dan, for your replies. Of course, we will seek views from the people who set up the trust for us. But, the views from the forum help us to further our understanding on this complex issue.

 

[quote}Why don't you go back to whomever you got the original deed from? They should be able to sort it out easily enough.

Cheers,

Dan [/quote]

and sue them

 

I have a MGS deed but can't see that clause, that is the number ?

 

Clause 24.

 

Refer attached, can't see mention of par value, everything refers to conditions attached to unit certificates.

Perhaps not all MGS deeds are created equal.

 

Dispose of them for a capital loss of $4.3M.
Part of the beauty of these things is that you are allowed to make things up to avoid as much tax as possible.

 

Hmmmmm ...........

National Tax & Accountants' Association - Your Association at Work - Your Association at Work - April 2007

Just interposing a trust does not act as a majic wand to make non-commercial arrangements suddenly deductible.

Cheers,

Rob