The unit trust deed provides each unitholder with an entitlement to an agreed percentage of the trust’s income and capital (based on their percentage unitholdings), however the trust is not a ‘fixed trust’ under the Tax Act and does not satisfy the requirements to be a ‘fixed trust’ for NSW land tax purposes either. The deed provides a reasonable degree of flexibility for allowing the structure to be changed in the future as required (for instance, a broad power for the trustee to vary the provisions of the deed).
This deed is designed to satisfy the Tax Office requirements to be a ‘fixed trust’ under the Tax Act. This is relevant in relation to issues such as determining which tax loss rules apply to the trust under the Tax Act and ensuring the income on any distributions paid to a unitholder which is an SMSF is not treated as non-arm’s length income. However, you should note that the current views of the courts and the Australian Taxation Office suggest that it is very difficult, and may be impossible, to satisfy the definition of a fixed trust for tax purposes. In an attempt to satisfy the strict requirements of a fixed trust, the trustee has limited flexibility in relation to the unitholder entitlements in the trust.
NSW land tax fixed trust
The NSW land tax fixed trust satisfies the relevant criteria to be a ‘fixed trust’ under the NSW land tax rules, and would generally only be used if the trust is acquiring land in NSW in order to access concessional land tax rates. The deed has been approved by the NSW Office of State Revenue and again, contains limited flexibility in relation to the unitholder entitlements in the trust. This deed is also designed to ensure the trust should be a ‘fixed trust’ for tax purposes.