Different Business Structures: Part 4: Unit Trust
What Is a Unit Trust?
A unit trust is a legal structure where the trust property is divided into defined shares, known as units. These units are typically subscribed to by beneficiaries in the same way shareholders buy shares in a company.
Unlike a discretionary trust, where distributions are made at the discretion of the trustee and beneficiaries hold no proprietary interest, a unit holder has a fixed and identifiable entitlement to the income and capital of the trust based on the number of units held. This proprietary interest extends to all the assets of the trust.
Key Features
Each unit entitles the holder to a share in the trust’s income and assets.
Unit trusts can offer different classes of units with varying rights and entitlements.
Commonly used for property investments, joint ventures, and co-ownership arrangements.
Advantages of a Unit Trust
Straightforward entry for equity partners – no value shifting issues
Less regulatory burden than companies
Fixed interests make it ideal for unrelated parties investing together
Access to CGT 50% discount
May qualify for small business CGT concessions
Simple to wind up
Asset protection with a properly drafted deed
No ASIC regulation
Less stringent substantiation rules than for individuals
Disadvantages of a Unit Trust
CGT small business concession flow-through can be limited by cost base adjustments
If funded by debt, disposal of units may trigger high CGT liabilities
Changes in unit holdings may cause pre-CGT assets to lose exemption
Generally cannot elect to become a family trust
Losses are quarantined within the trust
Subject to complex trust loss rules
Losses cannot be distributed or offset like companies
Clients often struggle to understand trust deed terminology
Higher costs than sole traders or companies
Complex PAYG and distribution calculations
Changing the trust terms or objects may lead to a resettlement, with CGT and stamp duty consequences
Is a Unit Trust Right for You?
Unit trusts work well where:
There are multiple unrelated investors
The parties want fixed entitlements
You're looking for a balance between flexibility and legal certainty
However, they can become costly and complicated if not set up and managed properly. Always consult a qualified adviser before deciding on the right structure for your business.
Disclaimer: The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. All content relates to the current financial year only. Future changes to tax laws, thresholds or administrative requirements may affect the accuracy or relevance of this information, so you should always confirm that the guidance remains current. While every effort has been made to ensure accuracy at the time of publication, Dolman Bateman accepts no responsibility or liability for any loss or damage arising from reliance on this information. You should seek professional advice tailored to your circumstances before making any financial or tax decision.
