Three years ago, the Australian Taxation Office (ATO) released the Product Ruling PR2011/15 which applied to the Chan & Naylor Property Investor Trust® Deeds (PIT®) established and executed after 27th July 2011. This was the first Product Ruling on individual trusts issued by the ATO and it was also the first time the ATO has given a Product Ruling on a trust product that is not centrally controlled by the sponsor or product supplier thereby giving the taxpayer more control.
However, the PR2011/15 Product Ruling had approval from the ATO to be applied to PITs for up to three years from the date that the Product Ruling was originally issued.
We are proud to therefore announce that Chan & Naylor has successfully obtained a new Product Ruling PR2014/15 in favour of the PIT® effective 1st July 2014 and compiled a list of Frequently Asked Questions about the implications of the new product ruling.
Frequently Asked Questions
Why was the Product Ruling only given approval to Chan & Naylor for three years?
It’s standard ATO Policy to limit approval periods for product rulings to be applied to the approved product for up to three years.
“I’m a client and have a PIT® under PR2011/15, how does this new product ruling affect me?”
Any clients with a PIT under the old product ruling (PR 2011/15) can still keep using it and have all the benefits and certainty that were originally approved by the ATO. Under these continuing use circumstances there is no expiry date to the old Product Ruling PR 2011/15. The new Product Ruling PR2014/15 only effects clients purchasing a new PIT® on or after 1 July 2014.
“I remember having my PIT Deed amended for the old product ruling, do I need to get my PIT Deed amended again?”
No, there is no requirement for clients to have PIT Deed amendments for PITs purchased between 27th July 2011 and 1st July 2014 to be in accordance with the new product ruling PR2014/15. However, if any clients purchased PITs before 27th July 2011 and have not yet had their Trust Deeds amended to be in accordance with the old product ruling PR2011/15, they are strongly recommended to have their Deeds updated to the product ruling to ensure certainty as to interest deductibility on borrowed funds.
Who’s affected by the new product ruling?
This new product ruling PR2014/15 approved by the ATO, only effects those clients purchasing a new PIT® from 1 July 2014.
Clients that purchase new PITs after 1 July 2014 can enjoy all the benefits and certainty afforded by the new Product Ruling PR2014/15 approved by the ATO, regardless of any possible and subsequent Product Rulings granted every three year period.
What happens if in three years time another Product Ruling is announced?
Clients can be rest assured that any PIT purchased and executed in line with an approved ATO Product Ruling at the time (whether PR2011/15 or PR2014/15) has certainty of claiming interest paid on negatively geared properties as a PAYG tax deduction.
What is a Product Ruling and how is it different to a Private Ruling?
A Product Ruling is an ATO blanket approval that is available to all taxpayers operating within the Product Ruling framework unlike a Private Ruling that only applies to a specific taxpayer and cannot be relied on by other taxpayers.
Therefore, taxpayers can now have certainty in relation to interest deductibility when using the Chan & Naylor Property Investor Trust®.
What are some other Features and Benefits of the Property Investor Trust®?
- There is no Vesting Date hence will not potentially trigger capital gains tax and stamp duty because the trust does not cease and goes on forever. Most other Trust Deeds have a Vesting Date (end date) of 80 years which then may trigger a capital gains tax and stamp duty and stops the control of the property from being passed from generation to generation effectively.
- Will allow interest on borrowed funds used to invest in the PIT® to be claimed as a tax deduction in the taxpayers/unit holders hands thus negative gearing can be claimed against an individual’s wages. Unlike many other Hybrid Trusts where the interest may not be tax deductible.
- Provides asset protection as the property is held separate from the individual.
- Provides a land tax threshold in most States of Australia except NSW so that one can minimize and even eliminate land tax in some States
- Protects the property from the marriage breakdown of your children
- Designed specifically for property and eliminates the E4 problems with other Trusts which may trigger larger capital gains tax when the property is sold.
- Allows control of the property to change hands with a change of the Trustee without triggering capital gains tax and stamp duty and enables the splitting of the assets of the Trust.
- Allows the beneficial or unit holders to change hands with no stamp duty in some states.
- If there is little or no gearing involved allows the flexibility to distribute the net rental or any capital gains to the lowest taxpayer/s if correctly set up.
- There is an ATO Product Ruling PR2014/15 giving you certainty of your tax deductible interest unlike other Trust Deeds.
Disclaimer: the above points are not an exhaustive explanation of the advantages of the “Property Investors Trust®” (PIT) ® and one should not rely on them without getting individual advice as the PIT® may not be suitable to you in your circumstances.
Also the above points have not covered off on how the requirements of the ATO Product Ruling PR2014/15 apply to you.
Please note that the Product Ruling is only a ruling on the application of the law. It is in no way (either expressly or implied) a guarantee or endorsement of the commercial viability of the PIT®, of the soundness or otherwise of the PIT® as an investment or of the reasonableness or commerciality of any fees charged in connection with the PIT®.
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.