What is a Unit Trust?
In Australia, a Unit Trust is a distinctive business structure where trust assets are divided into units, owned by unit holders. The governing document, the unit trust deed, outlines rules and rights associated with trust assets. Unlike a discretionary trust, a unit trust offers fixed interests to unit holders in both income and capital.
Establishment and Key Players
Setting up a Unit Trust involves key entities such as a trustee, typically a shelf company established solely for this purpose, unitholders who have fixed rights to the trust’s income and capital, and a comprehensive trust deed. The trustee, appointed by unitholders, plays a pivotal role in managing the trust’s affairs. Using a corporate trustee, as opposed to an individual, ensures continuity, as the trustee company’s existence is perpetual.
Units and Trust Deed
A unit represents a proprietary interest in the trust’s income and capital, providing unitholders with specific entitlements. The trust deed outlines the purpose, powers, and process of unit transactions, ensuring a transparent framework for all parties involved.
Distinguishing Unit Trusts from Companies
While units might seem similar to company shares, they differ significantly. A unit grants a proprietary interest in the trust’s assets, unlike a share.
One of the key attractions of a Unit Trust is its income tax benefits. Unlike a company, a unit trust is not a separate taxable entity. Income and capital are distributed pre-tax, which can offer a more favorable tax structure (depending on one’s circumstances). Additionally, trust property is protected from the trustee’s creditors in case of insolvency.
In conclusion, a Unit Trust is a versatile business structure with distinct advantages. Its tax benefits can make it an attractive option for businesses seeking flexibility and tax efficiency.
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