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Unit Trust Deed

This Unit Trust document create a unit trust and appoints a trustee to the unit trust. In this unit trust the trustee is also the manager of the trust. This Unit Trust document is not suitable for use in New South Wales.
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Suitable for Australian Capital Territory, Northern Territory, Queensland, South Australia, Tasmania, Victoria and Western Australia only
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Document Overview

A Unit Trust Deed is a document that is required in order to establish a unit trust. This type of trust is characterised by the clear and fixed benefit it provides to its beneficiaries. ‘Unitholders’, who are the beneficiaries in a unit trust, own a set number of units in a similar fashion to shareholders in a company. The number of units they hold is then used to determine the benefit they receive from the trust. This substantially differs from a discretionary trust where the trustee has the ability to decide who receives the benefit and the amount they will get. Unitholders in a unit trust are also able to sell the units they own quite easily. This form of trust is a popular option given the transparency it provides and the removal of discretion in the benefit allocation process. 

This document is vital to the formation of a unit trust as it will outline the terms of its use.

A Unit Trust Deed sets out the roles of the key parties within the trust, as well as the powers and rights they will be afforded.  In addition, the administrative processes that occur in the function of the trust will also be detailed. 

It should be noted that there are several ways a unit trust can be administered. Some unit trust deeds involve a third party who assists in the setup process, commonly referred to as a settlor or manager. With regards to this document, the role of the third party is combined with the trustee. It serves as a deed between a trustee and the "initial unit holder " who contributes an amount of money which establishes trust and creates units held by the initial unit holder . Thereafter, units can be issued to the other investors. You MUST seek advice from a qualified professional before using this deed to check that it meets your specific circumstances.

Use this Unit Trust Deed If:

  • You would like to establish a unit trust

What does this Unit Trust Deed Cover?

  • Formation of the trust
  • Identities of parties
  • Beneficial interest of unitholders
  • Classification of units
  • Register of unitholders
  • Certificates
  • Transfer of units
  • Distribution of income and capital
  • Appointment/removal of trustee
  • Meetings of unitholders
  • General powers
  • Termination

Additional Information

This document is not adapted for use as a security. If use of trust for security is proposed, there are many additional issues including the application of the Personal Property Securities Act 2009 (Cth).

There are various ways a unit trust may be constituted, some involving the appointment of a separate manager. In this precedent, the role of the manager is joined with that of the trustee. A unit trust created by this precedent is constituted by a deed between a trustee and the "initial unit holder" who contributes an amount of money which establishes the trust and creates units held by the initial unit holder. Thereafter, units can be issued to the other investors.

This method of constituting a unit trust ensures there is a trustee, trust property and a beneficiary, and avoids problems surrounding the definitions of "company" and "partnership" in section 995-1 of the Income Tax Assessment Act 1997 (Cth). Under section 601ED of the Corporations Act 2001 (Cth), a unit trust must be a registered managed investment scheme if there are more than 20 unit holders (see clauses 4.5(b) and 4.6).

Throughout, the precedent provision is made to enable the person drafting the deed to tailor the deed to the particular needs of the parties by requiring the holders of not less than a certain percentage of units to consent to or initiate various actions. Clear instructions should be obtained in drafting these clauses; ie optional provisions in 7.1(c), 8.2 and 20.6 and inserts for the Initial Amount definition in clause 1 and in clauses 7.1, 7.2, 8.2, 13.3, 14.1(b), 14.1(c), 15.1(d), 17.2, 18.1, 18.2, 18.5, 18.9, 22.1(a) and 23.4(c). External unit holders may also require a shareholding and perhaps a directorship in the trustee, and/or a combined unit holders and shareholders agreement to regulate further the affairs of the trust and trustee including obligations to provide loans, capital, guarantees, restrictions on external interests and rights on default.

As to the investment of trust funds, see clause 20.

Unit trusts originally were mainly used in the investment field but their modern use expanded so much they were at one stage, prior to the introduction of dividend imputation, the most common vehicle through which business was conducted in the non-public company arena. The flexibility of a unit trust often results in its choice as the preferred structure for many commercial ventures where the units are often held by the trustee of each investor's family discretionary trust.

Tax advice should be obtained in relation to the suitability of this trust deed and the unit trust structure in general for the client’s purposes, particularly following the issue of the ATO’s Practical Compliance Guideline PCG 2016/16 with respect to classification of a unit trust as a fixed trust for taxation purposes.

There have been significant developments in the law relating to trusts, including the decisions in Commissioner of Taxation v. Bamford; Bamford v. Commissioner of Taxation [2010] HCA 10 and Colonial First State Investments Ltd v Commissioner of Taxation [2011] FCA 16 and the introduction of the CGT and franking credit attribution rules in Subdivisions 115-C and 207-B of the ITAA 1997. In the light of the Bamford decision and the ATO’s draft Taxation Ruling 2012/D1 (the ATO has advised that no final version will issue while the Government is looking at reform of the law in this area), from 2018 the precedent has been amended to exclude “notional income” and “notional expenses” (as the Commissioner describes them in TR 2012/D1) from the definition of “income” in the unit trust deed. The trust deed permits the trustee to include or exclude an amount as income in a particular financial year by a resolution made prior to the end of the relevant financial year – see clause 11.7. As the trust deed contains an income equalisation clause, a decision of the trustee to distribute “income” must be made on or prior to 30 June in the relevant financial year – see ATO fact sheet QC 25912.

Further Information:

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