Fixed, transparent, bankable entitlements for every unit holder. The preferred vehicle for property investment, negative gearing, joint ventures, and self-managed superannuation fund co-investment — with proportional income and capital distributions and the ability to change ownership simply by transferring units.
A unit trust is established when the Initial Unit Holders pay the Initial Amount to the Trustee in exchange for units. Unlike a discretionary trust, there is no Settlor and no Appointor — the unit holders themselves hold the power to remove and replace the Trustee, create new units, determine an earlier Vesting Date, and vary the deed.
Every unit confers a proportional, fixed interest in the Trust Fund. Income and capital are distributed in proportion to unit holdings — the Trustee has no power to accumulate income or redirect distributions away from unit holders. This fixed structure is what makes unit trusts the vehicle of choice for property investment, co-investors, lenders and SMSFs.
Unit trusts have traditionally been used to hold property and other assets with a view to changing ownership simply by transferring units — avoiding the need to transfer the underlying asset itself and potentially triggering stamp duty or CGT at the asset level.
A unit trust has a simpler party structure than a discretionary trust — there is no Settlor and no Appointor. Power rests with the unit holders.
Establish the trust by paying the Initial Amount to the Trustee in exchange for their Initial Units. Unlike a discretionary trust, there is no separate Settlor who must remain outside the trust — the Initial Unit Holders are both founders and beneficiaries from day one. Stamp duty liability arises on establishment and on property transferred to the trust.
Holds legal title to the Trust Fund and administers the trust in accordance with the deed. The Trustee may be one or more individuals or a corporate trustee. The Trustee owes fiduciary duties to all unit holders — to preserve the Trust Fund, maintain proper accounts, act impartially, and not profit from the trust. The Trustee may be personally liable for trust debts but has a right of indemnity from trust assets.
Each unit holder holds a fixed, proportional interest in the Trust Fund corresponding to their unit holdings. Unit holders collectively control the trust — they may remove and replace the Trustee by resolution, consent to the creation of new units, redeem existing units, determine an earlier Vesting Date, and vary the deed. The Family Court is likely to treat a unit holder as having control of the trust for property settlement purposes.
In a unit trust, the entirety of the net trust income earned each financial year is distributed amongst the unit holders in proportion to the number of units each holds. The Trustee has no power to accumulate income or direct distributions away from unit holders — this is the fundamental distinction from a discretionary trust.
If a unit holder holds 50% of the issued units, they receive 50% of the net trust income. This fixed entitlement is what lenders, co-investors and SMSFs require — it cannot be altered by trustee resolution.
A distribution resolution must still be made on or before 30 June each year (IT 347). Because distributions are proportional to unit holdings, the resolution is straightforward — the Trustee resolves to distribute net income in accordance with unit holder proportions.
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.
Capital gains realised on the disposal of trust assets are included in the trust's assessable income and distributed proportionally to unit holders. Capital losses may be applied against gains but not against other income.
Under the proportionate theory (PS LA 2005/1), where accounting income and taxable income differ due to CGT asset disposals, capital gains are distributed in the same proportion as ordinary income.
Where 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 depending on the asset's cost base. Careful planning is required before making in specie distributions.
For this reason, it is very important that specific tax advice is obtained before entering into major investment transactions using a unit trust.
Unit trusts are the preferred vehicle for a wide range of investment and co-ownership arrangements where fixed, transparent entitlements matter.
Hold investment properties in a unit trust to provide co-owners with clearly defined, proportional interests. Ownership changes are effected by unit transfer rather than property transfer — simplifying succession and reducing transaction costs.
Unit holders borrow funds and invest them via unit capital subscriptions. Interest on borrowings used to acquire income-producing units may be deductible against the unit holder's assessable income — sheltering the unit holder from unnecessary future tax exposure.
Self-managed superannuation funds require fixed, arm's-length entitlements to co-invest in assets with related parties. A unit trust's fixed proportional structure satisfies ATO requirements for SMSF co-investment in property, commercial premises, and other assets.
Joint venture partners holding units have legally certain, proportional entitlements to income and capital. Units can be transferred as the joint venture evolves — without disturbing the underlying assets or requiring a new legal arrangement each time ownership changes.
Transfer units to family members or entities to progressively shift wealth across generations, with each transfer clearly defined and proportional. Land tax and stamp duty implications of unit transfers vary by jurisdiction — specific advice is recommended.
Pool capital from multiple investors into a single trust vehicle, with each investor's proportional interest clearly defined by their unit holding. Income streaming powers allow franking credits, capital gains and other income types to be characterised on distribution.
Trust income retains its character on distribution. Where a unit trust derives franked dividends, interest income and capital gains, each unit holder's distribution carries a proportion of each income type. Strategic streaming — directing different income types to unit holders best placed to receive them — can improve overall tax outcomes.
Under the Tax Laws Amendment (2011 Measures No. 5) Act 2011, where a trust has a net capital gain, unit holders can be made specifically entitled to that gain under Subdivision 115-C of the ITAA 1997. This directs the capital gain — and any associated CGT discount — to the nominated unit holder rather than spreading it proportionately.
Similarly, franked distributions and franking credits can be streamed to unit holders who can make best use of the imputation credits. Specific entitlement resolutions must correctly identify the unit holder and the income component — always obtain specific tax advice before streaming.
| Feature | MGS Unit Trust | MGS Discretionary Trust |
|---|---|---|
| Distribution basis | Pro-rata by unit holdings — fixed | Absolute trustee discretion — flexible |
| Income accumulation | ✗ Not available | ✓ Trustee may accumulate |
| Appointor / controller | ✗ No Appointor | ✓ Appointor controls trustee |
| Unit holder controls trustee | ✓ Yes — by resolution | ✗ Appointor controls trustee |
| Fixed trust for land tax | ✓ Generally yes | ✗ Generally no — surcharge may apply |
| SMSF co-investment | ✓ Compatible | ✗ Generally incompatible |
| Bankability | ✓ Fixed entitlements — bankable | Discretionary — harder to bank |
| CGT event E4 risk | ✗ Present | Trustee may manage via streaming |
| Tax flexibility | Limited — income split is fixed | ✓ Maximum — full discretion |
| Ownership transfer | ✓ By unit transfer | Not directly applicable |
The issue of units in a unit trust will not normally constitute a dutiable transaction for the purposes of any State or Territory stamp duty legislation. This is an important advantage — a new investor can be brought in by issuing new units without triggering stamp duty on the trust's underlying assets.
On the other hand, a redemption or transfer of existing units may attract duty — sometimes depending on the value of the transaction and the nature of the underlying trust assets. In particular, unit trusts holding dutiable property (such as land) in most jurisdictions will cause unit transfers to be treated as landholder transactions subject to duty.
Stamp duty 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 ServicesMost State and Territory land tax statutes impose non-concessional surcharge rates on land held in trusts that are not “fixed.” A discretionary trust almost always fails this test — beneficiary interests are not vested and indefeasible.
A unit trust, by contrast, can satisfy the definition of a “fixed trust” in most jurisdictions because unit holder interests are vested and indefeasible in proportion to unit holdings. This may mean the trust's landholdings are taxed at general rates rather than the trust surcharge rate — a potentially significant ongoing saving.
The precise definition of “fixed trust” varies by jurisdiction and is subject to change. Specific State tax advice is always recommended before relying on concessional treatment.
The Family Court has wide powers in relation to property in family law proceedings. A person who transfers assets to a unit trust in the hope of quarantining them from a relationship breakdown may find those protections illusory.
Under ss 90AF(1) and 90AF(2) of the Family Law Act 1975, the Court may make orders that alter the rights, liabilities or property interests of third parties in relation to a marriage. Because unit holders control the trust — including the power to appoint and remove the Trustee — the Court is likely to find that a unit holder has control of the trust for property settlement purposes.
A unit holder's equitable chose in action (their right to due administration and proportional distributions) is itself “property” within the meaning of the Family Law Act — regardless of whether the unit holder has a proprietary interest in specific trust assets.
Careful consideration must be given when distributing income or capital to unit holders under 18 years of age. Special higher tax rates apply to trust distributions received by minors (referred to as “eligible taxable income”).
| 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 the penal minor rates. Before making any distributions to minor unit holders, the Trustee should obtain specific tax advice from their accountant or financial adviser.
Common questions about the MGS 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 required for establishment.
Our team prepares a bespoke MGS Unit Trust deed to your specifications. Standard turnaround is 1–2 business days.
The deed is delivered ready for execution by the Initial Unit Holders and Trustee. Our explanatory memorandum covers establishment, stamp duty obligations, unit administration and the annual 30 June resolution requirement.
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