Business EntitiesBusiness Structuressmall businessTrusteeUnit HolderUnit Trust

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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