Unit Trust
A Unit Trust is different to a discretionary trust. Many small business operators use a Unit Trust for their business operations.
In a Unit Trust, the beneficiary has a fixed interest with a designated number of units similar to a partnership.
The beneficiary is called a “unit holder” and is entitled to a distribution of income in accordance with the percentage of units held in the Unit Trust.
It is not unusual in a Unit Trust for there to have been a payment made for units allocated.
A Unit Trust is normally used when there is more than one family or group of people involved in a business operation.
A Unit Trust needs a trustee. The trustee can be a company or individuals. The trustee is responsible for all day to day activities of the trust. The activities of the trust are governed by the Trust Deed. A “unit holder register” is maintained by the trustee, this records the name, address and number of units owned by each unit holder.
A Unit Trust can operate virtually any type of business. In normal circumstances, a Unit Trust does not pay income tax; the trustee must ensure there has been a distribution of the taxable income to the unit holders in accordance with the percentage that they hold in the unit trust. If the trustee does not make a distribution, then the trust has to pay income tax at the penalty rate of 46.5%.
There are special laws relating to unit trust losses and bad debts. These laws were introduced to discourage the sale of “tax losses” in unit trusts.
More Information
Additional information is available to download in our business papers area of the site filed in the Business Entities section.
Need Assistance?
The business structure you choose will have an impact on the way you are taxed, ongoing costs and asset protection. This is one area you will want to speak to an accountant about before you jump in.
If you are struggling to decide if a unit trust is the right choice for you, please give us a call on (02) 4390 4156 for a completely free and informative consultation.
Our services include all entity formations, including trusts. If a trust is the right vehicle for you, we can organise everything from your trust deeds through to the end-of-year tax planning.
ATO Booklet
The Australian Tax Office have produced a short booklet titled, Choosing the Right Business Structure.
Sole traders, partnerships, trusts and companies are covered in the publication along with a short overview of the advantages, responsibilities and super obligations of each.
It’s important you understand these advantages and responsibilities as they may affect:
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- the way tax applies to your business
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- protection of your assets
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- your operating costs
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- how other businesses deal with you.
Download Choosing the right business structure
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This information is for guidance only and is not intended as specific advice to any reader. Professional advice should be obtained before acting on any information contained herein. The publisher accepts no responsibility for loss occasioned to any person or organisation as a result of action or the refrain of action as a consequence of the contents of this publication.