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19 September 2008

Hybrid trusts under the spotlight

Morpheus Property asks what will the latest Taxpayer Alert from the Tax Office about the “uncommercial use” of hybrid trusts mean for property investors who use this structure?

In March 2008 the Australian Tax Office (ATO) released Taxpayer Alert (TA) 2008/3 which detailed its concerns about the use of some hybrid trusts.

It refers to the “uncommercial” use of certain trusts and describes:

"a non-arm’s length arrangement under which a taxpayer uses borrowed funds to acquire an interest, such as units, in a certain type of trust, which uses the funds to purchase income producing property. The arrangement seeks to provide income tax deductions to the taxpayer for all of their interest payments and their borrowing costs. The arrangement does not provide a sufficient connection between the expenditure and production of future income and/or capital gains, which may be distributed to other beneficiaries of the trust, who may have a lower tax rate”.

Always get Professional Taxation advice from a qualified Tax Accountant before deciding on any asset structure. Once you have purchased in a particular structure it can be very expensive and have grave unintended tax consequences if you want to change those structures.

Yours in Property

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