Business Entities – Unit Trust
A ‘unit trust’ is different to a discretionary trust (refer to last week – 12 March 2018).
Many small business operators use unit trusts for their business operations.
In a unit trust, a beneficiary has a fixed interest with a designated number of units similar to a partnership. The beneficiary is called a ‘unit holder’, and is entitled to a distribution of income, in accordance with the percentage of units held in the unit trust. It is not unusual in a unit trust for there to have been a payment made for units allocated. A unit trust is normally used when there is more than one family or group of people involved in a business operation.
The unit trust needs a trustee. A trustee can be a company or, at least, two individuals. The trustee is responsible for all day to day activities of the trust. The activities of the trust are governed by the trust deed. A unit holder register is maintained by the trustee. This records the name, address and number of units owned by each unit holder.
A unit trust can operate virtually any type of business. In normal circumstances the unit trust does not pay income tax. The trustee must ensure there has been a distribution of the taxable income to the unit holders, in accordance with the percentage they hold in the unit trust. If the trustee does not make a distribution, then the trust has to pay income tax at the penalty rate of 46.5%.
There are special laws relating to unit trust losses and bad debts incurred by a unit trust. An example of a unit trust flow chart –
Next week, we will comment on operating a small business through a Company.
If you would like to discuss business structures, please do not hesitate to contact us.
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