Tuesday, June 27, 2017

Unit trusts and fixed trusts


One area that seems to be receiving an increasing amount of interest from the Tax Office in recent times concerns the distinction between a unit trust and a fixed trust.

Often, the differences between these two types of trusts can be quite subtle and the interpretation of the trust deed can be critical in this regard.

As has been mentioned in numerous previous posts, the starting point in any trust related matter is to read the trust deed.

Where a trust deed is reviewed and the instrument does not reflect the intention of the parties, it is generally possible to convert what would otherwise be a unit trust into a fixed trust for tax purposes (and vice versa) without any adverse tax or stamp duty consequences.

Obviously, care does always need to be taken in this regard, and due to the potentially significant tax differences between the ownership structures, particularly in relation to issues such as trust losses, capital gains tax events and valuation requirements. It is therefore generally recommended that the trustee obtains specific written advice before implementing any intended change.

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