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Under a fixed trust, the beneficiaries have a fixed interest in the
assets of the trust and a fixed entitlement to income.
Note that a unit trust is not necessarily a "fixed trust".
Advantages
Disadvantages
1. Companies offer the advantages of limited liability for the
shareholders.
2. The imputation tax system ensures that if the company has paid tax,
then the shareholders will get a credit for that tax paid.
a)
Income tax
advantages
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Net income in a financial year is distributed amongst unit holders.
This distribution has to be included in the unit holders' income in
the financial year when the trust has earned the income and not the
year when the income is distributed
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The classification of trust income, for example, dividend income,
foreign income, or capital gain continues to be recognized under the
same classification in the individual unit holder's income tax
return and any imputation credit or foreign tax credits follows
through to the unit holder as per trustee's distribution
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If unit holders are under 18 years of age, by any income
distribution to them, trustees can avail their tax free threshold
and low income rebates
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The trustee of a fixed unit trust must distribute all income of the
trust and cannot accumulate income of the trust
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Only net income of the trust has to be distributed, a trust can also
contribute superannuation for all unit holders in proportion to
their unit holding, which means that tax on income of the trust can
be limited to tax rate on contribution to a superannuation fund,
which at the time of writing is 15%
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If the fixed unit trust has a loss and has received imputation
credits in the financial year, the trustee can lodge its own income
tax return and carry forward the loss to the next financial year and
claim a refund of imputation credits
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If units are owned via family trusts - various income tax, asset
protection and estate planning advantages connected to family trusts
are also available to unit holder.
b) Capital Gains
tax advantages
on disposal of any asset of the
trust, all unit holder are entitled to a 50% discount factor on capital
gains. If assets are disposed after one year, this discount flows
through to the unit holder's upon distribution of capital income.
c) Asset
Protection
advantages
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Any distribution to a unit holder need not be physically paid to them.
If the unit holders agree, trustee can retain money which it has decided
to distribute to unit holders and establish a bare trust for that unit
holder within the fixed unit trust.
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Money's belonging to unit holders who are under a legal disability, like
minors; distribution money from a fixed unit trust, can be held by the
trustee, under a bare trust arrangement, till they reach 18 years of age.
d) Land tax
advantages
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This fixed unit trust is treated as a
"fixed unit trust" within the
scope of Land Tax legislation in many states. What this means is that
this fixed trust will receive threshold available to trustees who own
land under this trust deed structure.
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For example Section 3A Land Tax Management Act 1956 of NSW states a
trust is a "fixed trust" if equitable estate in all of the land that is
the subject of the trust is owned by a person or persons who are owners
of the land for land tax purposes and equitable interest of the trustee
as trustee of the trust is to be disregarded. That means that the
persons who are beneficiaries of the trust (unit holders) under the
trust deed are taken to be the owners of an equitable estate in the land
that is subject to the trust.
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This equitable interest is created because this trust deed specifically
provides that the beneficiaries of the trust are presently entitled to
the income of the trust and capital of the trust and can require the
trustee to wind up the trust and distribute the trust property to the
unit holders.
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This trust cannot distribute capital or revenue losses to its
beneficiaries. Which means that any losses have to be carried
forward till a profit is achieved. As a result, should a trust incur
a net loss, its beneficiaries, may be wise to have debt held at the
unit holder level, rather than at the trust level, to avoid negative
gearing type losses being locked up in the trust.
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In a Fixed Unit Trust there is no discretion with the trustee as all
income of the trust has to be distributed to the unit holders
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appropriate for your situation, please
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