Whether a unit trust is in fact a fixed trust is an area that has been the subject of significant uncertainty.
In 2016, the Tax Office did release Practice Compliance Guidelines on its view of what is a fixed trust. Unfortunately, the release by the Tax Office is problematic for at least three reasons, namely:
- it only considered the meaning of ‘fixed trust’ for the purpose of the trust loss provisions under the Tax Act;
- the drafting approach of the Tax Office is non-definitive; in other words the Tax Office confirms it will retain the discretion to deem a trust not to be fixed despite what it sets out in the guidelines;
- furthermore, the guidelines are not themselves binding on the Tax Office.
- the trustee cannot create different rights or different classes of units;
- all units on issue must have the same rights to receive income and capital of the trust;
- units must be allotted for market value;
- all income and capital of the trust must be distributed in proportion to the unitholdings, i.e. there is no discretion held by the trustee;
- partly paid units cannot be issued;
- the trust deed requires all unitholders to agree on the redemption of units and any redemption must be at market value;
- all valuations of the trust fund, and in turn the determination of unit values, must be conducted by a valuer in accordance with ‘applicable Australian accounting principles’;
- the trustee cannot make gifts;
- the unanimous consent of all unitholders is required to vary the trust deed and the variation power should prohibit amendments to any of the above provisions.