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Knowledge Details

InterPrac Knowledge Base

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Unit Trusts

Do you provide stamp duty advice?

We do not provide stamp duty advice and it is best that you obtain your own advice before instructing us to do something on your behalf. We recommend contacting the various State revenue authorities to assist you with your enquiries.

I've heard that Hybrid Trusts can provide a lot of tax benefits. Do you provide them?

These types of trusts involve both fixed elements like a unit trust (and may even issue units), but also give the trustee an element of discretion in relation to the distribution of income and/or capital.

Although these types of trusts have their uses, they are often quite specific to the needs of the relevant individuals setting them up, and we do not provide them.

Also, we have found that the "tax benefits" of hybrid trusts are difficult if not impossible to achieve. Refer to our article on this topic, contrasting Hybrid Trusts with a Partnership of Discretionary Trusts here.

(We can refer you to a law firm who specialises in complex trust arrangements if you require.) 

 

Can you assist us with the winding up (vesting) of a Trust?

We can prepare a deed of vesting and supporting documents to wind up a trust. These documents will be prepared by our in house legal team in accordance with the terms of the deed, so we ask that you upload an executed copy of the original deed to the online order form.

If the trustee is a company and it is also going to be wound up, this should not happen until after the trust has been vested, as the trustee will be a party to the Deed of Vesting.

You will need to ensure that the trust has no income or assets as at the date of bringing forward the vesting date and that there are no remaining obligations to the beneficiaries.

You can order a deed of vesting online: Vest a Unit Trust or Vest a Discretionary Trust

What if I need to change something in my trust deed?

If we have recently set the trust up for you, and you have discovered that you want something changed in the deed and it has not yet been executed, we can generally make the change and update the documents for you. This is because the trust has not yet come into existence, and so we can just update the relevant parts (or the whole deed) and resend it.

However, once the trust deed is executed, the trust exists, and so any change will need to be done by our lawyers as a separate deed of amendment or variation, specific to your circumstances (generally for $350). Please contact us if this is the case or complete one of the following forms:

Can you stamp my client's trust deeds?

As a registered Duties Online organisation, we can process the duty in Victorian and New South Wales for deeds that we have established. (Please note that we need the executed deeds in hard copy to process the duty and unfortunately cannot accept a scanned copy.)

Read more about our optional stamping service for Discretionary, Unit and Child Mainentance Trust establishments.

Can you amend my client's trust deed?

We can prepare a trust deed amendment to make the following changes to an existing trust:

 

Our legal team will review your existing deed and prepare the amendment as a supplementary deed to be kept with the original trust deed. The deed and supporting documents will be prepared in accordance with the rules as set out in the original trust deed.

Where more than one of these changes is to be made, please note the price is $350 per change and separate deeds of amendment will be prepared.

In some rare cases an initial deed of amendment may be required to add the power to make the amendment. In these cases a further $350 applies to make that amendment to the deed to enable the change you want to make.

Please note: we are unable to change/remove beneficiaries of an existing trust due to the risk of resettling the trust. When a "resettlement" occurs, the old trust is considered to come to an end and a new one begins, giving rise to CGT and stamp duty issues. We would recommend seeking legal advice in this situation.

Can you stamp trust deeds that are late and outside of the prescribed time frame?

We are able to stamp most deeds that are a little late, however if they are extremely late then we may not be able to assess online.

There may be interest to pay based on the time between signing the trust deeds and them being assessed for duty.

It's up the the relevant state revenue office to determine whether there will be penalties or interest to be paid for late assessments, and we are unable to calculate this until we attempt to process the duty online. As a guide, the VIC and NSW SRO will often waive penalty interest under $20 for deeds that are a few months late, but not if they are years late.

To avoid late interest fees from the SRO trust deeds should be stamped in Victoria within 30 days of signing and within 3 months of signing in New South Wales.

See more information about our trust stamping service.

Should different trusts have different trustees or can one trustee act for more than one trust?

It is generally preferable to have separate trustees for the following reasons:

  • it avoids the need to prove which assets belong to which trust. If two trusts have the same trustee and one gets into financial difficulty, it could be extremely costly for the trustee to prove which assets are beneficially owned under which trust; and
  • there is a risk that a creditor could get access to the assets of all trusts for which the trustee acts, i.e., creditors of one trust may access assets of the others.

Can you stamp trust deeds?

Absolutely! We are a registered lodger in Victoria and NSW for trust deeds that we have established.

When you set up a Victorian or NSW trust with us, you have the option to order our Stamping Service for $33 (plus the duty for the relevant state). We create the deeds and send to you for execution and stamp/assess them once they’re returned to our office. We have more information about this on the stamping page of our website.

Our trust establishments are available when logging in. Our services are available to accounting and financial professionals, so if you are neither of these, we would recommend contacting a financial services professional to advise you (they can organise all this for you).

Otherwise, if you already have your deeds and only need them stamped, the relevant revenue office in your state should be able to provide you with a list of registered lodgers who may be able to assist you.

What trusts documents need to be prepared when the corporate trustee of a trust changes its name? And could changing the name of the trustee company cause a resettlement of the trust?

We believe that it should be fine to change the name of the corporate trustee, without any adverse consequences for the trust.

As the company itself will be remaining as trustee of the trust and only its name will be changing, we don’t think it should be necessary to prepare and documents for this change. When the company receives its certificate of name change from ASIC, a copy of the certificate should be kept with the trust deed to show that the trustee’s name has changed.

Note that some banks may insist on a deed on confirmation or similar to confirm that although the company name has changed, the trustee of the trust remains the same. We think this shouldn‘t be necessary, but can assist in this regard if so requested (our fee to prepare a deed of confirmation would be $350).

What are some of the tax consequences for non-resident trusts?

If a trust is a non-resident trust, there are various tax rules (including the “transferor trust” regime, and the “foreign investment fund” regime) which may attribute some of the income of the trust to some of the Australian beneficiaries of the trust.

The purpose of these rules is to ensure that foreign sourced income of Australian residents is taxed at Australian rates of tax, and to prevent offshore accumulation of income in low or no tax jurisdictions.

Does your system integrate with CAS 360 for trust establishments?

Yes! When you establish a trust with Constitute, we can set up the trust in your CAS 360 software without you needing to re-key the information. Read how to do this here.

My client has changed their name since their trust was established and now the bank is requesting their new name be reflected in the trust deed. Can Constitute assist with this?

As long as the person is remaining in their role within the trust (i.e. as trustee/appointor/beneficiary/unitholder) and has only changed their name, you should keep a copy of the name change documents/marriage certificate with the trust deed and this should be sufficient.

However, if a third party (such as a bank) insists on this being reflected in the trust deed, we can prepare a deed of confirmation to show that, although the person has changed their name, they still remain in their role(s) in the trust. Our fee for this service is $350.

(It is rare that this will be required; keeping the name change documents/marriage certificate with the deeds is usually sufficient.)

I have heard that super funds should not hold units in related unit trusts. Is this right?

The main thing to be careful about is the restrictions on investments that SMSFs can make.

In particular there are the "in-house asset rules", which generally prohibit a super fund from investing more than 5% of the fund's assets in a related party. Normally the unit trust will be a related party, and the acquisition of the units will be an investment - so you will need to be careful about this (especially if the SMSF already has other in-house asset investments!).

For example, if the SMSF has $100,000, the maximum it can generally invest in related parties (in total) is $5000.

There are exceptions to this, but it's best to obtain specialist advice if you would like an SMSF to invest in a unit trust.

Income from a unit trust may also be "non-arm's length income" in the hands of the fund and taxed at penalty rates.

In addition, to be safest, SMSFs should only really invest in fixed unit trusts, so that they have a fixed interest in the trust's assets (and the trustee cannot "siphon" funds out of the trust by, for example, issuing units to someone else for less than they are worth).

For example:

  • Assume a unit trust starts out with no assets.
  • SMSF buys 100,000 units in the unit trust for $1 each.
  • Individual buys 100,000 units in the unit trust for $1 in total.
  • The unit trust now has $100,001, and, theoretically, the SMSF has a 50% interest in that (worth $50,000.50), and the individual also has a 50% interest in that (worth $50,000.50). So the individual has effectively siphoned funds out of the super fund.
  • This can't happen with a fixed unit trust - units must be issued for what they are worth.
  • But, you'll still need to consider in-house asset rules!!


Note: If we receive an order setting up a unit trust with an SMSF subscriber, unless we receive explicit instructions to the contrary, we will assume that the investment in the unit trust is consistent with the SMSF's investment strategy.

Note also that we provide a separate (non-geared) unit trust deed that is specifically tailored to having an SMSF as a unitholder. You can order this Non-Geared Unit Trust online. Of course, this unit trust deed by itself does not guarantee compliance by the SMSF unitholder with the superannuation legislation.

For more information read this Tax Warning for unit subscribers for Super Funds

What's the difference between an ordinary unit trust and a fixed unit trust?

Where a trust incurs tax losses, certain rules need to be satisfied in order to claim those losses. The rules for claiming the losses depend on whether the trust is a 'fixed trust' or a 'non-fixed trust'.

A trust is a fixed trust if persons (i.e., individuals, companies, trusts etc.) have fixed entitlements to all of the income and capital of the trust, but this does not necessarily mean that all unit trusts will be fixed trusts.

For a unit trust to be a fixed trust, the trust deed must specify that units can only be redeemed or issued for a price determined on the basis of the net asset value, according to Australian accounting principles, of the unit trust at the time of redemption or issue. Our deed contains clauses to this effect.

If the trust deed allows for other methods of valuing new units or the redemption of units then the trust will be a 'non-fixed trust'.

Generally, a fixed trust can carry forward any losses it makes, to be offset against future income, if it satisfies the "50% stake test". Basically, this test requires that the same individuals must have had, at all relevant times, more than a 50% stake in the fixed trust (i.e., more than a 50% stake in the income and capital of the trust between them). A fixed trust must also satisfy the 'income injection test'.

For a non-fixed trust to be able to carry forward its losses, it may not only need to satisfy the 50% stake test, but also the 'pattern of distributions test', the 'control test' and the 'income injection test'. Although this is more difficult, it is important to note that a non-fixed trust can still carry forward losses provided it satisfies the relevant tests.

Can the sole trustee of a unit trust also be the sole unitholder?

We do not accept that a sole trustee can also be the sole unitholder in a unit trust, as in that case the legal and beneficial interests could be said to have merged, negating the existence of the trust.

I ordered a unit trust from you a few years ago and would now like to change it into a fixed unit trust. Can you do this for me?

Unfortunately, once you have ordered a deed from us, we do not make any significant structural changes to the deed unless the deed has not been executed.

Our concern with making major structural amendments to a trust deed is that this may cause a resettlement of the trust, which can have adverse tax and stamp duty implications (although it is by no means certain that a change such as this will resettle a trust).

We do not get involved in anything that may resettle a trust. As alluded to above, we do not really make any changes to deeds once the trusts are set up unless it hasn't really done anything (in which case we can provide replacement deeds for a fee). You may wish to contact a solicitor who can provide advice in relation to this, who could also tailor any amendment to the deed to your circumstances.

I ordered a fixed unit trust, but it was meant to be an ordinary (non-fixed) unit trust. The deeds have all already been signed and executed, and the trust has entered into agreements, etc. How can I go about changing this?

Unfortunately, the fixed unit trust deed and the ordinary unit trust deed are entirely different deeds, with different provisions, and to make a change to the deed now may constitute a resettlement (which can have stamp duty and capital gains tax (CGT) implications). Whether this change would resettle the trusts (it would mainly involve adjusting how units can be valued) is unclear.

Nevertheless, in some cases (i.e., where it is clear that the wrong deed was used by mistake when the trust was established), it may be possible for a deed of rectification to be prepared to reflect the original intention of the parties when the trust was established and to correct the mistake.  Whether a deed of rectification can be prepared needs to be considered on a case by case basis, having regard to the risk of resettlement.

I need to change the unitholders or transfer the units in an existing unit trust - can you prepare documents for this?

Yes, we can prepare documents for simple changes in unitholders and/or unitholding in a unit trust for the transfer, redemption or issue of new units.

If you have a {{supplier_name}} deed, the procedure for making changes is also set out in clauses 6 and 7 of our current deed) and we provide a template transfer notice, unit certificate, application for new units and instrument of transfer of units at the back of each unit trust deed we prepare. 

I have heard that the NSW Office of State Revenue have changed their approach to land tax on land held by unit trusts in response to a High Court case. Do Constitute's unit trusts get around this?

Where a unit trust with one of our standard deeds holds land in NSW, it is possible that the NSW Office of State Revenue will apply land tax to the trust itself, as a "special trust" and at the special trust rates, rather than the individual unit holders as unit holders in a "fixed unit trust". This is because the unit holders under our standard deed do not have any interest in specific assets of the trust (i.e., the land), but only have a proportionate interest in the assets of the trust as a whole.

However, we do now also provide a separate trust deed that is a fixed unit trust for NSW land tax purposes (as confirmed by the NSW OSR), as well as for income tax purposes.

Also refer to S.3A of the Land Tax Management Act 1956 for the definition of a "special trust".

So does this mean your 'fixed unit trust' is not a fixed trust for NSW land tax purposes?

Although we do not advise on State taxes (or any taxes), it is quite likely that our standard fixed unit trusts are "special trusts" for NSW land tax purposes under the Office of State Revenue's new interpretation.  Our standard fixed unit trust is a fixed trust for income tax purposes, not NSW land tax.

However, we do now also provide a separate trust deed that would be a fixed trust for NSW land tax purposes (as confirmed by the NSW OSR), as well as for income tax purposes. You can order this type of trust here.

 

Is the Constitute unit trust a "family unit trust" for NSW land tax purposes?

Whether a trust will be a "family unit trust" for NSW land tax purposes or not depends more upon the circumstances of the individual trust, rather than the deed.

However, in relation to the definition of a "family unit trust", the unitholders (with ordinary units) under our deed are entitled to a fixed proportion of any distribution of income or capital of the trust, made by the trustee, based on the proportion of income or capital units which each person owns in the trust.

Note that we are not sure that new trusts can be family unit trusts.

The definition of "family unit trust" can be found in Schedule 1AA of the Land Tax Management Act 1956 (NSW):

http://www.austlii.edu.au/au/legis/nsw/consol_act/ltma1956173/sch1aa.html

We should reiterate that we do not provide advice about state taxes (or any taxes) and do not warrant that a particular product is suitable for a particular person or purpose, so specialist advice should be sought before utilising any of our products to ensure they are suitable for any contemplated purpose.

Please ensure there are no provisions in the Trust Deed to allow for any discretion to distribute income to anyone else other than the unitholders, in proportion to their units.

The trustee has no discretion to distribute income to anyone apart from unitholders in proportion to their unitholdings. However:

  1. the trust deed allows for different classes of Units (like a company can have different classes of shares), and the distribution of income is "subject to any special rights or restrictions in relation to Units of any class". Therefore, if there are different classes of units with different rights (e.g., "Income only Units", or "Capital only units"), then this may affect how income may be distributed - though there will still be no discretion and distributions will still depend on unitholdings.
  2. also, if all of the unitholders agree, the trustee can accumulate income, and it is then to be treated as capital, although capital can only be distributed in proportion to unitholdings (subject to there being different classes of units, as explained above).

Does the Trust Deed allows for "undrawn present entitlements" to unitholders, or are such amounts classified as "loans" in the Unit Trust?

There is no reference to "undrawn present entitlements" in the deed, but if an amount is distributed to a unitholder but not actually paid, then it is held on a separate trust by the trustee until it is paid - it is not considered a loan.

With the initial unit application monies, can these be refunded without redeeming the units?

You can't "refund" application moneys without redeeming the units, but, under our deed, the trustee can distribute capital (and the application moneys are considered capital) to the unitholders (proportionally) at any time.

Note that there may be adverse tax consequences where a unitholder receives a capital distribution.

Does a unit trust need to lodge a prospectus with ASIC?

Companies may be required to lodge a prospectus under Chapter 6D of the Corporations Act 2001. A unit trust will not need to lodge a "prospectus" under Chapter 6D, as it only applies to companies and securities (basically shares).

However, some "managed investment schemes" are required to be registered under Chapter 5C of the Corporations Act 2001.

Basically, most unit trusts would probably fall within the definition of "managed investment scheme", but if they have less than 20 unitholders, they don't have to worry about registering with ASIC - Refer S.601ED of the Corporations Act 2001.

Can you transfer units, issue new units or redeem units in a unit trust?

Yes, we can prepare documents for simple changes in unitholders and/or unitholding in a unit trust for the transfer, redemption or issue of new units.

For Constitute unit trusts the procedure for making changes is also set out in the deed (refer to clauses 6 and 7 of our current deed) and we provide a template transfer notice, unit certificate, application for new units and instrument of transfer of units at the back of each unit trust deed we prepare. 

I have seen some unit trust deeds with a settlor. Why aren't your unit trust deeds settled by a settlor?

Most unit trust deeds (like ours) do not have a settlor, although some do.  By way of contrast, a discretionary trust deed must have a settlor.

This is largely to do with the payment of the initial amount that is required to establish a trust.  For a unit trust, this amount is generally paid by the initial unitholders, in return for the units that are issued to them.  The initial unitholders therefore in a sense fulfil the “settlor” role for unit trusts.

A discretionary trust has beneficiaries, rather than unitholders, and so it is necessary for a settlor to pay a nominal amount to establish a discretionary trust.

Also, discretionary trusts, which have been around for much longer than unit trusts, have traditionally been “settled” by a person (the settlor) who wishes to establish the trust.

I set up a unit trust through another service provider, and now wish to change the trustee. Are you able to perform this service? If so, how much would this cost? Also, will this involve reissuing a new deed?

Changing the trustee normally requires a deed of variation. To do this, we need to see the existing trust deed, establish how a variation of the deed can be accomplished, and then, usually, prepare the deed of variation, often to be signed by the trustee (usually the unitholders also need to consent in writing - we provide this, too). The deed of variation needs to be prepared on the basis of the client's deed - we cannot really use a "pro-forma" deed.

We provide our deed of variation service for $350. We do not issue a new deed - you will basically attach the deed of variation that we issue to your existing trust deed.

Click here to order a change of trustee for a trust.

In the Constitute unit and fixed unit trust deeds, will the chairperson have a casting vote?

This is up to you!

We have flexible options in our online forms for you to choose from; the deed can either give the chair a casting vote to break deadlocks, or not give the chair a casting vote, which means that in the event of a deadlock that cannot be broken, the unitholders can request that the matter be referred for decision by arbitration. (The relevant clause in our trust deed is 16.1)

Giving the chairperson a casting vote allows for deadlocks to be resolved relatively easily, but also gives the chairperson the power to sway the vote on matters should there be an equal number of unitholders both for and against a particular issue.

Therefore, if you elect not to give the chairperson a casting vote, this avoids one person possibly wielding a disproportionate amount of power at meetings, but also means that resolving deadlocks may not be so easy (and could potentially be protracted and quite costly).

When establishing a unit trust with Constitute, can the initial units be unpaid, or partially paid?

Unfortunately, no. All our unit trust deeds in effect require all units to be fully paid when the units are issued to the unitholders. This includes the unit trust, fixed unit trust, fixed unit trust for NSW land tax and non-geared unit trust.

Is it necessary for unit trust deeds to include a 'foreign exclusion' clause in relation to the stamp duty surcharge on 'foreign' purchases of residential land?

No. It is the case in all states and territories of Australia that only a unit trust with foreign unitholders would (possibly) be regarded as a foreign trust.  A unit trust that only has Australian residents as unitholders would not be regarded as a foreign trust.

Under our unit trust deed (and under unit trust deeds in general), it is only the unitholders that have an interest in the unit trust, as distributions of income and capital can only be made to the unitholders.  Therefore, a unit trust where all the unitholders are Australian residents would not be regarded as a foreign trust, although this could change if a foreign person subsequently became a unitholder.

Note that a unit trust with foreign unitholders is not necessarily a foreign trust.  E.g., in Tasmania, a trust is only a foreign trust if one or more foreign persons “have a beneficial interest of 50% or more in the capital of the estate of the trust.”

Also note that in New South Wales, the surcharge legislation specifically only applies to discretionary trusts, so a unit trust in NSW would not be a foreign trust for surcharge purposes even if it has foreign unitholders.


The position is different with discretionary trusts, as discretionary trusts generally have a much wider range of beneficiaries who can receive distributions from the trust. Read these articles for how this applies to discretionary trusts:

Victorian SRO about to take a more strict approach regarding “foreign” trusts

Deadline may be looming for NSW trusts to cease to be a “foreign trust”