A unit trust is a sort of mutual fund in which a fund manager manages money from numerous investors (known as “unit holders”) in order to provide a particular return. Then, this fund manager compiles a portfolio of securities and assets.
Who is qualified to hold a unit?
Units in a unit trust can be held by numerous individuals and organizations, including:
- individuals,
- Funds for superannuation (have restrictions),
- Businesses, and
- more trusts, like discretionary trusts.
Because a firm is not eligible for the 50% capital gains tax (CGT) reduction and individual assets are not secured in a unit trust structure, people and businesses typically choose not to become unit holders.
A unit trust invests in stocks, bonds, money market instruments, and other investments using a pooled amount of money. Units are then created by splitting the pool into equal parts. Based on the total market value of the assets held in the fund, each unit has a price or Net Asset Value (NAV).
A unit trust’s advantages as an investment
– Investing in a unit trust is easy and transparent, and you don’t need a lot of time, knowledge, or experience to get started.
– Low liquidity
– Minimal upfront investment
– Expert fund management staff
– Extending diversity beyond a single investment
– Assets managed independently by a trustee.
Unit trust funds may be vulnerable to losses as a result of changes in national, regional, or global economic conditions, governmental regulations, or political developments because they invest primarily in listed equities.
How is a unit trust created?
1.Role selection in a unit trust
2.Creating the trust agreement
- Putting together additional required paperwork
- Establish your faith
- Agreement Between Shareholders and Unitholders
- Think about Stamp Duty.
- Further Registrations
How Do Unit Trusts Earn Profits?
Open-ended unit trusts are divided into units with varying prices. An open-ended fund permits additions to the pool as well as withdrawals. The value of the fund’s overall asset value is directly impacted by these prices. Due to the trust’s open-ended nature, additional units are created anytime funds are invested in it, matching the current unit purchasing price. Assets are also liquidated to match the current unit selling price if units are taken.
The difference between the price of the unit when acquired, which is the offer price, and the price of the unit when sold, which is the bid price, is how fund managers are paid. The bid-offer spread is the amount that separates the offer price from the bid price. Different bid-offer spreads exist. Depending on the type of assets being managed, the shift can be as small as a few basis points for commonly traded assets like government bonds or as large as 5% or more for harder-to-trade assets like real estate.
Frequently Asked Questions
What is a unit trust used for?
A unit trust divides ownership into fixed units, similar to shares, which suits arrangements where each party’s share needs to be fixed in advance – commonly used by unrelated business partners or co-investors in a property or business venture.
How is a unit trust different from a discretionary (family) trust?
A discretionary trust lets the trustee decide how income is distributed each year, while a unit trust allocates income and capital according to each unitholder’s fixed proportion of units, regardless of the trustee’s discretion.
Does a unit trust need its own tax return?
Yes – the trust lodges its own annual tax return, and unitholders separately report their share of the trust’s income in their own individual, company or trust tax return.
Can a company be the trustee of a unit trust?
Yes – a corporate trustee is common for unit trusts, particularly where asset protection is a priority, though an individual can also act as trustee.
What ongoing compliance does a unit trust require?
An annual tax return, accurate unit registers showing each unitholder’s holding, and trustee resolutions or distribution records depending on the trust deed’s terms.
Can you help set up and manage a unit trust?
Yes – we prepare unit trust deeds, handle ABN and TFN registration, and manage the trust’s ongoing tax and compliance obligations.
Related Trust & Company Structures
If a unit trust doesn’t quite fit and you’re considering the setup process in more detail, see our unit trust formation page, or our trust setups for commercial property page if you’re buying property through the structure. For company structures instead, see company formation.
Unit trust cost, how to set up a unit trust, and the pros and cons of a unit trust compared to other structures all depend on your specific situation – our accountants talk through each before you commit.