Unit Trust
- Which type of Unit Trust should I use - "fixed" or "non-fixed"? Includes "What is the difference between a Unit Trust that is "fixed" and one that is "non-fixed"?"
- Can a trust own units in a Cleardocs unit trust?
- Can a trustee own units in a Cleardocs unit trust?
- Can a corporate trustee own units in a Cleardocs unit trust?
- Can additional units in a Cleardocs Unit Trust be issued in the future?
- Does a Cleardocs trust give me asset protection?
- When should the trustee apply for an ABN for the trust?
- Will the trust be entitled to an ABN?
- What do I do if the unit trust deed is lost?
- I want to change the trustee of my unit trust from an individual to a corporate trustee. I have not yet incorporated the company to act as trustee. What do I do?
- Does the Cleardocs Unit Trust help reduce land tax in NSW?
- What do I need to do for the trust to be a fixed trust for NSW Land Tax purposes?
- What if the Commissioner rules that my trust is not a fixed trust for NSW Land Tax purposes?
Which type of Unit Trust should I use - "fixed" or "non-fixed"?
To decide which type of unit trust to use, you need to understand the difference between the two types of unit trust.
What is the difference between a Unit Trust that is "fixed" and one that is "non-fixed"?
The differences between the two types of unit trust are:
- the Unit Trust (Fixed) contains one class of ordinary unitholders, with the same rights to capital and income distributions of the trust in proportion to their unitholdings.
- the Unit Trust (Non-Fixed) allows two classes of unitholders:
- ordinary unitholders, with rights to capital and income distributions of the trust in proportion to their unitholdings; and
- income unitholders who may, at the trustee's absolute discretion, receive distributions of income of the trust.
The trust is "non-fixed" because no unitholder or class of unitholders have a fixed (proportional) entitlement to income of the trust. This has important implications — for instance unitholders in the "non-fixed" unit trust cannot claim a tax deduction on borrowing costs associated with their unit holding.
More information?
For more information on:
If you are not sure which type of unit trust suits you, or your client, then you need to speak with your lawyer or accountant. We can arrange for you to speak with our lawyers at Maddocks, but this is not part of the free legal helpline, so the firm will charge you for its time.
Can a trust own units in a Cleardocs unit trust?
No (but see next 2 questions). A trust cannot own units in a unit trust because the law . says a trust is not a separate legal person. For example, the 'John Smith Family Trust' cannot own units or any other property.
Even so, the trustee of a trust, in his, her or its capacity as trustee, is capable of owning units and other property - see next question.
This answer is the same for a "Unit Trust - fixed" and a "Unit Trust - non-fixed".
Can a trustee own units in a Cleardocs unit trust?
Yes, a trustee can own units in a unit trust - as long as you include the trustee's name and their capacity. For example:
In this case, the trustee holds the units in the unit trust on trust for the beneficiaries of the trustee's own trust.
(The trust itself cannot own units as it is not a legal entity.).
This answer is the same for a "Unit Trust - fixed" and a "Unit Trust - non-fixed".
Can a corporate trustee own units in a Cleardocs unit trust?
Yes a corporate trustee can own units in a unit trust - as long as you include the trustee's name and their capacity. For example:
In this case, the trustee holds the units in the unit trust on trust for the beneficiaries of the trustee's own trust.
(The trust itself cannot own units as it is not a legal entity.)
This answer is the same for a "Unit Trust - fixed" and a "Unit Trust - non-fixed".
Can additional units in a Cleardocs Unit Trust be issued in the future?
Unit Trust - fixed Yes, units in a Unit Trust - fixed may be issued in the future. This is the flexibility that a unit trust provides. Further units may be issued, and units may be sold or redeemed.
Unit Trust - non-fixed Yes, units in a Unit Trust - non-fixed may be issued in the future. This is the flexibility that a unit trust provides. Further ordinary units, and further income units, may be issued.
However, in a Unit Trust - non-fixed:
- income units can not be sold. Instead, they can be redeemed - but only ever for a value of $1.00.
- ordinary units may be sold.
For each type of trust, the deed sets out:
- The process for issuing more units or selling or redeeming units; and
- How to calculate the price for the relevant units.
Does a Cleardocs trust give me asset protection?
A trust can play an important role in an asset protection strategy, but unit trusts less so.
However, if you are concerned about asset protection, then you should seek legal advice concerning your own circumstances.
This answer is the same for a "Unit Trust - fixed" and a "Unit Trust - non-fixed".
When should the trustee apply for an ABN for the trust
ABNs are not compulsory. However, there are many good reasons to have one - for example, they help:
- You to deal with the ATO; and
- Help you in dealing with other businesses when supplying goods or services to them, or when purchasing goods and services.
Also, you need an ABN to register for GST. Entities carrying on an enterprise in Australia with a GST turnover of $75,000 must register for GST.
More information can be found at www.abr.gov.au.
This answer is the same for a "Unit Trust - fixed" and a "Unit Trust - non-fixed".
Will the trust be entitled to an ABN
A trust must meet either one of the following 2 criteria to be eligible for an ABN:
Criterion 1
The entity is any one of:
- A company incorporated under the Corporations Act 2001 in Australia;
- A charitable institution or trustee of a charitable fund in Australia;
- A deductible gift recipient in Australia; or
- A religious institution in Australia.
Criterion 2
The entity can answer 'Yes' to each of the following statements:
- 1. Its activity is carried out in any of:
- 1.1 the form of a business
- 1.2 the nature of trade, or
- 1.3 the form of a regular or continuous grant of a lease, licence or interest in property.
- 2. Its activity is carried out in Australia or it makes supplies that are connected with Australia.
- 3. Its activity is not a private recreational pursuit or hobby.
This answer is the same for a "Unit Trust - fixed" and a "Unit Trust - non-fixed".
What do I do if the unit trust deed is lost?
You can't simply replace a unit trust deed because to do so may create a new trust - which has tax and stamp duty implications.
So, if a discretionary trust deed has been lost, then you need to consider the following steps in consultation with a lawyer:
- Arrange for all parties to the deed to conduct a thorough search for the deed;
- Contact the person (maybe a solicitor or accountant, or their firm) who arranged the deed to see if they have a copy;
- Ask the person (maybe a solicitor or accountant, or their firm) who arranged the deed if they have a deed which they arranged around the same time as your lost deed was arranged;
- Seek advice from your lawyer as to whether you can use a similar deed to replace the lost Deed; and
- If none of the above options are available, then the trustee can approach the relevant state or territory court and apply for directions on how to administer the trust.
This answer is the same for a "Unit Trust - fixed" and a "Unit Trust - non-fixed".
I want to change the trustee of my unit trust from an individual to a corporate trustee. I have not yet incorporated the company to act as trustee. What do I do?
You can create a company through Cleardocs using the Company Registration package. Once you have registered the company it can be appointed as trustee of the trust. You will need to see a solicitor to draft a Deed of Appointment and Resignation. This document officially appoints the new company as trustee of your trust and records the outgoing individual trustee's resignation.
Maddocks can provide you with a quote to prepare these documents. Please call us to arrange a quote from Maddocks.
Does the Cleardocs Unit Trust help reduce land tax in NSW?
The Cleardocs interface:
- for the "Unit Trust — fixed" allows you the option to order a deed that helps to reduce the land tax payable on any real estate the trust holds in New South Wales (you will need to send the executed deed to the NSW Office of State Revenue); and
- for the "Unit Trust — non-fixed" does NOT allow that option — this is because it is not available under the law.
What do I need to do for the trust to be a fixed trust for NSW Land Tax purposes?
The Cleardocs system will ask you whether you want your unit trust to be a fixed trust for NSW Land Tax purposes. If you answer "Yes", then the trust deed will include the clauses that are drafted so that the trust qualifies as a fixed trust under the Land Tax Management Act 1955. These clauses have been reviewed and approved by the NSW Commissioner for State Revenue.
But there is always a risk that the law or the Commissioner's policy will change, including as a result of decided cases. Accordingly, you should apply to the Commissioner to classify your trust before you settle property into it. You will be given information on how to do this with your trust deed — that information is provided by Maddocks.
What if the Commissioner rules that my trust is not a fixed trust for NSW Land Tax purposes?
If your trust deed was from Cleardocs, then call the Cleardocs help line on 1300 307 343. You will be put in touch with a lawyer from Maddocks who can advise you of your next steps.
If your trust deed is not from Cleardocs, then speak with your lawyer, or the lawyer who prepared your trust deed.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
