Unit trusts offer a reliable and flexible solution if you’re looking for a way to invest in assets alongside others or structure shared ownership within your business. Whether planning a joint property venture, managing business assets or seeking long-term investment growth, a unit trust structure can help you reach your financial goals with clarity and control. This guide explores how unit trusts work, the role of fixed unit trusts, and why individuals, businesses and investment groups across Australia use this investment structure.
A quick guide to unit trusts
Unit trusts let people or businesses pool money to buy income-producing assets like property or shares. Each unit shows ownership in the trust. A trustee manages the assets and shares income based on the number of units held. This structure offers shared ownership, tax benefits and flexible investment options for individuals and groups.
What are unit trusts, and why do they matter for your business or investment strategy?
A unit trust is a collective investment structure governed by a trust deed. The deed outlines how the trust operates, the roles of the trustee and unit holders, how income is shared, and how units are transferred.
Unit trusts suit a range of people and businesses:
- Individuals investing with others
- Small and medium-sized businesses
- Developers in joint property ventures
- Super funds and family trusts
Typical uses include property ownership, income sharing among beneficiaries and structured tax planning.
How a unit trust works: Key roles and financial structure
A unit trust has three main parts:
- Trust deed: the legal document that outlines how the trust operates
- Trustee: manages the trust and its assets
- Unit holders: own units and receive income based on their holdings
Each unit represents a share of ownership. The trust earns income from assets such as rent or dividends, which is then distributed to unit holders. A clear structure ensures transparency and reduces disputes.
| Role | Description |
|---|---|
| Trustee | Manages assets and follows the trust deed |
| Unit holder | Receives income and benefits |
| Trust deed | Sets rules for the trust structure |
Understanding investment through a unit trust structure
A unit trust allows people to pool funds into one investment vehicle. The trustee uses the money to buy income-producing property or shares. Investors benefit based on the number of units held.
A unit trust may hold a range of assets:
- Commercial or residential property
- Shares in companies
- Bonds or fixed-interest investments
This structure makes it easier for smaller investors to access large or diversified investments. Income and capital gains are passed on to unit holders and taxed at their tax rate.
What is a fixed unit trust, and when should you use one?
A fixed unit trust gives each unit holder a fixed share of income and assets. This structure provides predictability and is useful when ownership must stay consistent.
Unlike a discretionary trust, where the trustee decides who receives income, a fixed unit trust distributes income based on unit holdings.
| Feature | Fixed unit trust | Discretionary trust |
|---|---|---|
| Income distribution | Fixed based on units | At the trustee’s discretion |
| Ownership rights | Linked to each unit | Variable |
| Tax planning | Predictable | Flexible |
| Legal structure | Clear via a trust deed | More trustee control |
Fixed unit trusts work well for joint ventures, estate planning or property investment where consistent ownership is key.
How to set up a unit trust in Australia: Step-by-step guide
To set up a unit trust, follow these steps:
- Create and sign a unit trust deed
- Choose a trustee (individual or corporate)
- Issue units to investors
- Apply for an ABN and TFN
- Record unit ownership and income distribution
Keeping clear digital records supports compliance and simplifies reporting.
The advantages and disadvantages of using a unit trust structure
A unit trust structure offers many benefits for both businesses and investors. It also comes with a few challenges. Before you decide to set up a unit trust, it helps to weigh up the pros and cons. This can guide your decision and help you plan for long-term growth.
Advantages:
- Shared ownership: A unit trust allows people or businesses to own assets together. Each unit holder knows their share based on the number of units held.
- Asset protection: A trust keeps trust assets separate from personal assets. This may reduce risk for investors.
- Flexible income distribution: Income and profits can be distributed to unit holders in line with their ownership. This is useful for planning net income and capital gains.
- Tax efficiency: Sometimes, a unit trust can reduce tax. Trust income is taxed at each unit holder’s rate, not at the trust level. You can also plan around Capital Gains Tax (CGT).
Disadvantages:
- Legal and tax compliance tasks
- Possible disputes between unit holders
- Ongoing administrative duties
| Benefit or risk | Description |
|---|---|
| Shared ownership | Based on units held |
| Income distribution | Proportional, not at trustee’s discretion |
| Tax planning | Taxed at unit holder level |
| Complexity | Requires structured compliance |
| Admin duties | Reporting and updates required |
What is a unit holder, and what are their rights and responsibilities?
A unit holder owns units in a unit trust. They receive income and benefits in line with their unit holdings. While they don’t manage the trust, they may vote on key decisions depending on the trust deed.
Unit holders can be:
- Individuals
- Super funds (including SMSFs)
- Companies
- Family trusts
Units can be transferred or sold. All changes must follow the trust deed and be appropriately recorded.
Who can be an investor in a unit trust, and how do they benefit?
Investors in unit trusts include individuals, companies, super funds and family trusts. They benefit from:
- Indirect access to valuable assets
- Lower entry costs by pooling funds
- Income and capital gains based on unit holdings
- Tailored investment options like fixed unit trusts or property trusts
The unit holder pays tax, which supports personal tax planning. The structure also offers flexibility and portfolio growth.
How do you invest in a unit trust in Australia?
Before investing, review:
- The trust deed
- Type of trust structure
- Trustee background
- Asset mix and income distribution
- Tax and CGT exposure
To invest, you can:
- Apply through a trustee or fund manager
- Sign legal documents
- Pay for units and register your details
Documentation and transparent records help maintain compliance and fairness.
Choosing the right trust structure for your business or investment goals
Your choice of trust affects income, tax and control. Consider:
- Who will manage the assets
- Whether you need scalability
- Risk protection
- Your tax goals
| Structure | Key features |
|---|---|
| Unit trust | Fixed ownership, shared income |
| Partnership | Simple, shared liability |
| Company | Legal entity, corporate tax rate |
| Discretionary trust | Flexible income distribution |
Choose a structure that fits your control needs and investment strategy.
Using a unit trust for property investment strategies
Unit trusts work well for property investment. Investors can pool funds and avoid joint title ownership. The trust holds the property and shares income and capital gains by unit.
Benefits include:
- Shared ownership without title complications
- Clear distribution of rent and profits
- Asset protection
- Easier exit or unit transfer without selling the property
Investing in a unit trust vs direct ownership: Which is better?
Unit trusts offer shared ownership through units. The trustee owns and manages the asset. In direct ownership, individuals hold the asset directly.
| Criteria | Unit trust | Direct ownership |
|---|---|---|
| Ownership type | Shared via units | Individual or joint title |
| Liability | Segregated risk | Personal liability |
| Documents required | Formal trust deed | Basic contracts |
Unit trusts suit group investing. Direct ownership may be easier for smaller personal assets.
Unit trusts vs mutual funds: What’s the difference?
Both pool money for investment. However, unit trusts offer more control and flexibility, while mutual funds rely on a fund manager’s decisions.
| Feature | Unit trust | Mutual fund |
|---|---|---|
| Ownership | Linked to trust assets | Units in a fund pool |
| Management | Trustee-based | Managed by fund manager |
| Control | More investor input | Less investor control |
| Tax treatment | At the unit holder level | Varies by fund type |
Choose based on how involved you want to be in the investment.
Why investment advice is essential when considering a unit trust
Trusts involve legal, tax and financial duties. Mistakes can affect income and compliance. Before you set up or invest in a unit trust, speak with:
- A lawyer to draft a solid trust deed
- An accountant for tax strategy
- A financial adviser for investment structure alignment
What happens to your money from a unit trust?
Your money is used to buy assets. Income earned (e.g. rent, dividends, interest) is distributed to unit holders. You can also reinvest income, if allowed by the deed.
Tax applies to each unit holder based on income and CGT share. Accurate records help manage reporting and compliance.
Frequently asked questions about unit trusts
Do unit trusts provide asset protection?
Yes. The assets are owned by the trust, not by individual investors. This can improve security and reduce risk. It also makes it easier to manage shared ownership without complex title changes.
Why are unit trusts a popular option for investors?
Unit trusts are a popular way for people to access shared investments. They make it easier for investors to invest in property, shares, or other assets without needing significant upfront capital and provide a flexible way to grow wealth.
Who may set up a unit trust?
Anyone can set up a unit trust, including individuals, companies, or family groups. You may use a unit trust to manage a business, hold property, or build an investment portfolio.
How secure is a unit trust?
The security of a unit's trust depends on clear documents and good management. A firm trust deed, accurate records and proper reporting all help protect the unit holders’ interests and maintain trust security.
Is a unit trust the right choice for your business or investment goals
A unit trust offers clear ownership, shared costs and flexible income distribution. It suits investors, business partners and super funds who want a simple way to pool funds and grow wealth. It also supports better asset protection and tax planning.
A fixed unit trust may work well if you want control and structure. Other trust types or investment structures may be better if you prefer flexibility. Consider your goals, tax needs, and how much control you want over the assets.
A unit trust can lower costs and open access to more significant investments for individuals and small businesses. It offers structure, compliance, and room to grow for medium and large firms. For family groups or SMSFs, it helps manage income and protect assets.
You must keep documents clear and secure regardless of your size or plan. The trust deed, number of units, income records and asset details all matter. Good recordkeeping reduces risk and helps you stay compliant.
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