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The Complete Guide to Unit Trusts Funds in Australia
September 30, 2021
Olivia Smith
Unit trusts funds Australia

In a unit trust, one or more candidates have defined entitlements to the capital income or any income of trusts. They are the fixed and defined entitlements, aka units. Beneficiaries who hold units are the unitholders.

With a unit, the interests of unitholders get divided into fixed percentages. Suppose a unitholder has 70­ units and another holder has 30. The first holder has 70% interest in the trust, while the other holds 30% interest. You can issue, redeem, and transfer units. If you want to learn about its purpose, read on.

Understanding The Use of Unit Trusts

Unit trusts funds Australia gets used for making investments. A majority of retail investment funds get set up as unit trusts in Australia. Even smaller investors use them for low-tier property development and investment purposes. The best example is when two partners set it up for holding business premising accordingly! But how do entrepreneurs set up the unit trust?

Setting Up The Unit Trust: How?

You can get two methods to do so, and they are below:

First Method: The first is when the settlor contributes a settled sum (i.e., the initial amount) to a trustee (i.e., a company/another individual) to hold that sum in terms of the Unit Trust Deed. As soon as the trust gets established, other individuals subscribe to the units in that trust.

Second Method: The second is when the Initial Unit Holder(s) (i.e., one individual or more) subscribes for the initial units by paying the sum to the Trustee.

A Trustee may be one or more persons or/and companies. When a company plays the role of a Trustee, it avoids the complications of tracking individual Trustees. Additionally, it provides an excellent governance regime. It would be better if the Unit Trust Deed offers Unit Holders the entitlement to hold shares in the same proportion as the trust.

Process for Individuals to Hold Units in The Unit Trust

In the unit trust, super funds, individuals, trusts, and companies can hold units. The most simplified way to keep it is through a family discretionary trust or super fund. When the individuals get fired, one can find the units as assets. A company doesn’t qualify for a 50% CGT discount on the capital gain from selling units. So, it’s not common to hold the units in companies.

Types of Unit Trusts: Fixed vs. Non-Fixed

The fixed unit trust comprises 100% of interests in the trust’s capital and income held for Unit Holders. A trust becomes non-fixed due to the following reasons:

1st: A Trustee who has the discretion to allocate capital or income to Unit Holders!

2nd: The Trustee has a right to redeem or issue units at a price different from the market value.

With non-fixed unit trusts, it becomes challenging for a Trust to proceed with issues, distribute dividends from share investments, and quality for specific CGT concession.

Wrapping up

A majority of individuals don’t completely appreciate the complications involved in a unit trust within the investment structures. But, when utilized properly, they become a useful addition to the overall business structure.