A unit trust enhanced with the power to issue Special Units — giving holders defined entitlements to income only, capital only, or both. Multiple unit classes. Customisable rights. ATO-compliant. Built on the solid foundation of the MGS Unit Trust.
An MGS Hybrid Unit Trust has all the features of an MGS Unit Trust — fixed, proportional entitlements for unit holders, unit holder control of the trustee, income distributed pro-rata each financial year — but additionally vests the Trustee with the power to issue units of various descriptions carrying various entitlements.
The Special Units may be known as Special Income Units, Special Capital Units, or any other distinctive name. The rights attaching to each class are described in the Certificate of Units and determined by the Trustee in its absolute discretion at the time of issue. A unit holder may be entitled to income only, capital only, or both — depending on the class of unit they hold.
There do not have to be any Special Units on issue at the time of creation (only the Initial Units are required). Special Units may be issued at any time — at $1.00 each (recommended) or another denomination — provided the total value issued reflects the market value of the new holder's proportional interest in the underlying trust assets.
The Trustee may issue units of different classes, each with entitlements tailored to the unit holder's investment purpose and the trust's commercial needs.
Unit holder entitled to a proportional share of net trust income reasonably attributable to their investment — including ordinary income and realised capital gains. No entitlement to capital on winding up (unless Certificate provides otherwise).
Unit holder entitled to a proportional share of the corpus (capital) of the Trust Fund on winding up or redemption. May or may not carry income entitlements depending on the Certificate of Units for that class.
Unit holder entitled to both income and capital in proportions defined in the Certificate of Units. Rights are fully customisable by the Trustee at the time of issue to reflect the commercial arrangement between the parties.
Multiple unit classes may exist simultaneously. Ordinary unit holders hold standard pro-rata entitlements. Special Unit holders hold the rights described in their Certificates. The Trustee administers distributions to all classes concurrently, consistent with each Certificate.
For example, in a trust with $500,000 in assets, 250,000 Special Income Units at $1 each represent a 50% interest. Those units are entitled to 50% of the net income reasonably attributable to their investment — both ordinary income and realised capital gains.
Like a standard unit trust, the Hybrid Unit Trust has no Settlor or Appointor. Unit holders control the trust — with Special Unit holders holding additional rights defined in their Certificates.
Establish the trust by paying the Initial Amount in exchange for Initial Units. There is no separate Settlor. The Initial Unit Holders are both founders and beneficiaries from day one. Stamp duty liability arises on establishment and on the transfer of property to the trust.
Holds legal title to the Trust Fund. In a Hybrid Unit Trust the Trustee has the additional power to issue Special Units and to determine the rights attaching to each class in the Certificate of Units. Owes fiduciary duties to all unit holders — must act impartially between holders of different unit classes in accordance with their Certificates. Corporate trustee recommended.
Hold Initial Units (and any subsequent ordinary units) conferring proportional pro-rata entitlements to trust income and capital. Collectively control the trust — may remove and replace the Trustee by resolution, consent to new unit issuances, and determine an earlier Vesting Date. The role can never be vacant — the trust cannot exist without ordinary unit holders.
Hold Special Units with entitlements to income only, capital only, or both — as defined in their Certificate of Units. Entitled to the proportional share of net trust income (ordinary and statutory, including realised capital gains) reasonably attributable to their investment. Units issued and redeemed at market value. Entitlement cannot be defeated by trustee accumulation.
The document issued to each Special Unit holder specifying the rights and entitlements attaching to their units. The Certificate governs the unit holder's income entitlement, capital entitlement, redemption terms, and any other specific rights. Each unit class may have a different Certificate. All Certificates must comply with the ATO's TA 2008/3 requirements.
The Family Court is likely to treat a unit holder as having control of the trust for property settlement purposes. Unit holder interests are equitable choses in action — “property” within the meaning of the Family Law Act 1975. Where a client's relationship may be unstable, specific Family Law advice is essential before assets are transferred to a Hybrid Unit Trust.
In a Hybrid Unit Trust, net trust income is distributed in proportion to the units held by each unit holder — consistent with their Certificate of Units. The Trustee has no power to accumulate income or redirect distributions away from unit holders. Each unit holder's share is determined by their unit class and holding.
A distribution resolution must be made on or before 30 June each year (IT 347). Because distributions are proportional to unit holdings by class, the Trustee resolves to distribute net income consistently with the Certificates. The resolution may record proportions before the exact income figure is known.
A physical payment need not be made immediately. With the unit holder's consent, the Trustee may credit the distributed amount to a loan account in the trust's books. The amount remains assessable income to the unit holder in the year of the resolution and constitutes “property” under the Bankruptcy Act 1966.
Units in a Hybrid Unit Trust are CGT assets. Disposal of units by a unit holder may give rise to a capital gain. Under the proportionate theory (PS LA 2005/1), unit holders entitled to trust income will also receive a proportional share of realised capital gains.
Where trust assets are distributed in specie to unit holders, the Trustee is treated as having sold the asset at market value — a capital gain may arise. Specific tax advice should be obtained before any in specie distribution.
Income streaming — directing different income types to the unit holders best placed to receive them — is available under the Tax Laws Amendment (2011 Measures No. 5) Act 2011 via specific entitlement resolutions under Subdivision 115-C of the ITAA 1997.
The Hybrid Unit Trust suits investment and co-ownership arrangements that require the base certainty of a unit trust with the added flexibility of differentiated unit classes.
Issue Special Income Units to a co-investor who requires an income stream without capital exposure, and Special Capital Units to a co-investor seeking capital appreciation — within the same trust and the same property.
Unit holders borrow personally to subscribe for units — interest on those borrowings may be deductible. The MGS deed satisfies the ATO's three requirements for interest deductibility for compliant unit holders.
Fixed unit holder entitlements across all unit classes satisfy ATO requirements for SMSF co-investment. The Certificate of Units defines the SMSF's specific income or capital entitlement with the precision regulators require.
Joint venture partners with different investment objectives — income-seeking vs capital growth — can participate in the same underlying asset via different unit classes, each with clearly defined proportional rights.
Allocate income entitlements to income-dependent family members via Special Income Units while preserving capital for another generation via Special Capital Units — within the same estate planning structure.
Pool capital from investors with different risk appetites and return requirements. Each unit class carries rights tailored to its investor profile — all backed by the fixed-entitlement certainty of a unit trust structure.
In Taxpayer Alert TA 2008/3, the Commissioner identified features of poorly drafted Hybrid Unit Trusts that jeopardise the deductibility of interest on unit holder borrowings — the very feature that many unit holders use these structures to access.
Certain providers were making contentious claims about their hybrid unit trusts — including that capital gains could be streamed away from unit holders and that no adverse legislation could ever affect the deed. The Commissioner's subsequent Interpretative Decisions were overwhelmingly adverse to unit holders in those structures.
The MGS Hybrid Unit Trust deed does not contain any of the features the Commissioner has described as offensive. In particular, Special Unit holders are entitled to that proportion of the net trust income (both ordinary and statutory income, including realised capital gains) reasonably attributable to their investment. This entitlement cannot be defeated — including by accumulation. Units are always acquired and redeemed at market value.
| Feature | MGS Unit Trust | MGS Hybrid Unit Trust | MGS Hybrid Disc. Trust |
|---|---|---|---|
| Unit holder structure | Single class, pro-rata | Multiple classes | Standard units + Special Units |
| Discretionary income | ✗ No | ✗ No | ✓ Yes — via trust |
| Appointor / Settlor | ✗ No | ✗ No | ✓ Yes |
| Income-only unit class | ✗ No | ✓ Yes | ✓ Yes |
| Capital-only unit class | ✗ No | ✓ Yes | Possible |
| Land tax fixed trust | ✓ Generally yes | ✓ Generally yes | ✗ Generally no |
| SMSF co-investment | ✓ Compatible | ✓ Compatible | Seek specific advice |
| ATO compliance | ✓ TA 2008/3 N/A | ✓ Compliant | ✓ Compliant + PBR |
The issue of units in a Hybrid Unit Trust will not normally constitute a dutiable transaction for State or Territory stamp duty purposes. However, a redemption or transfer of units may attract duty — particularly where the trust holds dutiable property (such as land), in which case unit transfers may be treated as landholder transactions.
A Hybrid Unit Trust may qualify as a “fixed trust” for State land tax purposes — because all unit holder interests (across all classes) are vested and indefeasible in accordance with their Certificates of Units. This may qualify the trust's land holdings for concessional land tax rates, rather than the discretionary trust surcharge.
Stamp duty and land tax implications vary significantly by State and Territory and should be assessed before any unit transfer, redemption or new issuance. Contact the MGS State Tax Services team for specific advice.
State Tax ServicesThe Family Court has wide powers in relation to property in family law proceedings. Because unit holders control the trust — including the power to remove and replace the Trustee — the Court is likely to find that a unit holder has control of the trust for property settlement purposes.
Under ss 90AF(1) and 90AF(2) of the Family Law Act 1975, the Court may make orders altering the rights, liabilities or property interests of third parties in relation to a marriage. A unit holder's chose in action — their right to proportional distributions — is “property” within the meaning of the Act.
Penal tax rates apply to trust income received by unit holders under 18. These rates apply regardless of which unit class the minor holds.
| Eligible Taxable Income (2022/23) | Tax Rate |
|---|---|
| Below $416 | General adult rates apply |
| $416 – $1,307 | Greater of: 66% of excess over $416, or difference between tax on total income and tax on non-eligible income |
| Above $1,307 | Highest marginal rate on the entire eligible taxable income |
Capital Vested (Child Maintenance) Trusts — created on death or relationship breakdown — are exempt from penal minor rates. Before any distributions to minor unit holders, the Trustee should obtain specific tax advice.
Common questions about the MGS Hybrid Unit Trust. Contact our team for matters specific to your client's circumstances.
Create your MGS account or log in at macquariegs.com.au. Registration is free and takes under two minutes.
Provide the Trustee details, Initial Unit Holders, initial unit allocation and Initial Amount. Our form guides you through each field — including unit class details if Special Units are to be issued at establishment.
Our team prepares a bespoke ATO-compliant MGS Hybrid Unit Trust deed to your specifications. Standard turnaround is 1–2 business days.
The deed, binder and explanatory memorandum are delivered ready for execution by the Initial Unit Holders and Trustee. The memorandum covers establishment, stamp duty obligations, Special Unit issuance procedures, the 30 June resolution requirement, and market value redemption rules.
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