Unit Trust Deed kit

The “Safety First” Checklist: Why accountants choose us

Do not risk your assets with a non-law firm, resold template. Before building a Unit Trust, ensure your provider meets these 10 legal and tax essentials. (If they are not a law firm, they likely fail all of them.)

1. The “Law Firm” Warranty

Most online deeds are merely templates sold by non-lawyers. This leaves you exposed. Your Legal Consolidated Deed is authored directly by a law firm. It comes with a formal Letter of Advice and Bank Certificate, both on our law firm letterhead. This confers Legal Professional Privilege, protecting your documents and instructions from seizure in legal disputes—a critical protection that non-lawyer websites cannot provide. It confirms that Legal Consolidated drafted the deed, not the accountant.

2. The ‘Forever’ Trust: Avoiding the 80-year expiry date

Non-Legal Consolidated Unit Trust deeds often carry a “ticking time bomb”: they are forced to vest (wind up) after 80 or 120 years. This triggers Capital Gains Tax and stamp duty liabilities for your children and grandchildren. In contrast, the Legal Consolidated Unit Trust deed is drafted to last as long as the law allows, which is forever in South Australia. Furthermore, our deed is dynamic; if the laws in your state change to abolish the limited life restriction (as we anticipate they eventually will), your Unit Trust automatically updates to extend its life indefinitely. We future-proof your asset protection.

3. The ‘Broomhead’ Shield: Protecting your personal assets

Most investors assume a Unit Trust protects their personal assets. Unlike shares in a company, this is not automatic. Under the precedent of Broomhead v Broomhead, if a Unit Trust becomes insolvent, the Unitholders may be personally liable for the Trust’s debts. This puts your family home at risk. This liability applies unless the deed contains a specific clause that explicitly extinguishes the Trustee’s right of indemnity against the Unitholders. Many budget templates miss this. The Legal Consolidated deed includes a robust “Broomhead Shield” clause that limits your liability to the capital you invested. This shields your personal wealth.

4. Complimentary Solicitor’s Certificate (Lending Compliance)

When a Unit Trust borrows money, banks require a “Solicitor’s Certificate” to confirm that the deed contains the necessary lending powers. Without this, you may need to engage a lawyer to review the deed, incurring additional costs and delays. We provide this Solicitor’s Certificate as a standard inclusion, signed on our law firm letterhead. This document certifies that the Trustee has the requisite powers to borrow and grant security, facilitating a smoother finance approval process with your lender.

5. The ‘Bamford’ Streaming Power (Advanced Tax Minimisation)

Effective tax planning requires the ability to “stream” specific types of income, such as capital gains and franked dividends, to the Unitholders best placed to receive them. Our deed incorporates the principles from the landmark High Court decision Commissioner of Taxation v Bamford. This ensures the Trustee has the specific power to define “income” in a manner consistent with applicable tax legislation. This empowers your accountant to distribute trust income in the most tax-efficient manner, ensuring valuable tax credits and concessions are fully utilised.

6. Minimise Capital Gains Tax Event E4

You suffer Capital Gains Tax Event E4 when a Unit Trust distributes non-assessable amounts, such as tax-deferred income or building allowance returns. This tax event requires the Unitholder to adjust the cost base of their units, which triggers an unexpected capital gain. The Legal Consolidated deed is drafted with a flexible definition of income. This allows the Trustee to exercise discretion in how income and capital are categorised. This strategic power helps the Trustee manage distributable income to prevent or minimise the impact of Capital Gains Tax Event E4 for the Unitholders.

7. The Unitholder’s ‘Prenup’ (Dispute & Deadlock Resolution)

Business partnerships can sometimes face disagreements. To ensure commercial certainty, our Unit Trust deed contains a comprehensive dispute resolution framework. It includes specific provisions for independent valuation of units and a “Shotgun” clause to resolve deadlocks. This mechanism allows a party to set a price to either buy out the other Unitholder or be bought out themselves. This provides a fair, transparent, and efficient exit strategy that helps the parties avoid the expense and uncertainty of litigation.

8. Global & SMSF Compliance

Our Unit Trust deed acts as a robust platform for diverse investment strategies. It includes an overriding compliance clause designed to protect Self-Managed Superannuation Funds (SMSFs) from inadvertently breaching the Superannuation Industry (Supervision) Act 1993. Further, the deed provides the Trustee with express powers to manage obligations regarding foreign beneficiaries, ensuring compliance with the Foreign Investment Review Board (FIRB) and withholding tax requirements. This broad compliance framework makes the deed suitable for a wide range of investors.

9. Comprehensive Secretarial Pack

We provide more than just a deed; we deliver a complete legal framework for the establishment and ongoing management of your Unit Trust. Your comprehensive pack includes:

• Law Firm Letter of Advice: A formal letter confirming that our law firm prepared the documents.

• Minutes & Resolutions: The formal records required to establish the trust and issue the initial units legally.

• Registers & Certificates: A compliant Unit Holder Register and professional Unit Certificates to evidence ownership.

• Administrative Tools: A suite of documents for future use, including Unit Transfer forms and applications for new units.

• Solicitor’s Certificate: Our law firm’s certificate to assist with any bank lending requirements.

10. Modern Administration: Electronic & Virtual Powers

Modern business requires flexibility. Our deed is drafted to accommodate contemporary administrative practices. It expressly authorises the use of electronic notices and permits Unitholder meetings to be held via virtual technology, such as Zoom or Microsoft Teams. This ensures that the administration of your Unit Trust remains efficient and compliant, regardless of where the Unitholders are located.

What is a Unit Trust deed?

A Unit Trust deed sets out the Unit Trust rules. It is the Unit Trust’s rule book. Commonly, a Unit Trust either:

• holds assets; or
• runs a business.

For asset protection, a Unit Trust would not mix assets (low risk) with a business (high risk).

A Unit Trust apportions trust assets according to ‘units’. As a Unit Holder, you get beneficial ownership of trust property according to the number of units you own.

For example, you have 150 units and I have 50 units. Therefore, you own 75% of the Unit Trust assets. I own 25% of the assets in the Unit Trust. So, if the Unit Trust’s income is $100,000. You get $75k. I get $25k. There is no discretion.

A Legal Consolidated Unit Trust is the best of a Family Discretionary Trust and a company. In a Family Discretionary Trust, the Trustee holds the assets for the Beneficiary. So too, the Unit Trusts’ Trustee holds the assets for the benefit of the Unit Holders.

Company vs Unit Trust

Australian Unit Trusts are similar to companies.

• Unit Trusts have Unit Holders.
• Companies have shareholders.

• Unit Holders hold units in Unit Trusts
• Shareholders hold shares in companies.

Units may change in value. This is just like shares. The High Court of Australia demonstrates the benefits of Unit Trusts over companies. See Charles v Federal Commissioner of Taxation (1954) 90 CLR 598. This is because:

• in a company, a shareholder has no interest in company assets.
• in contrast, a Unit Holder has a proprietary interest in the Unit Trust assets.

This is in exact proportion to the Units that you hold in the Unit Trus.

Is it better to purchase a commercial property in a company or a unit trust?

With a Unit Trust, you potentially get a 50% CGT relief. Additionally, you may be eligible for small business CGT relief. A Unit Trust does not usually pay the CGT on the sale of an asset. Distributions from the Unit Trust form part of the unitholders’ income. This is subject to the unitholder’s own marginal tax rate. Franking credits, from company dividends such as BHP, are available for unitholders in a fixed unit trust.

A Unit Trust reduces CGT. A company is less likely to get the CGT discounts and relief.

In contrast, wealth is trapped in a company. It is challenging to extract wealth from a company. Also, unless you sell the shares in the company (which buyers generally do not want) the company does not get the 50% CGT relief. It is also difficult to get the small business CGT relief.

For this reason, accountants often consider a trust, such as a unit trust, to be the better vehicle for purchasing a property and other appreciating assets.

But CGT on the sale of the commercial property is only one issue. What about the income earned on the commercial property each year?

However, the eventual sale of the appreciating asset is only one issue. During that time, the commercial property earns income.

A downside of a Unit Trust is that you usually end up distributing (transferring) the annual profit out of the Unit Trust every year. This is because the unitholder pays the tax on their own tax return. In contrast, a company can ‘hoard’ or ‘retain’ the profit at the company’s fixed and constant tax rate. 

For example, a Unit Trust and a company both have an income of $100k:

• The Unit Holders pay tax on that income at their marginal tax rate. For a human, this is up to 47%. If you pay the tax, you generally want your money.
• However, the company itself pays tax on the income. This is up to 30%. It then retains the income in the company.

Negative gearing is quarantined for both the unit trust and the company

Negative gearing flows through to a sole proprietor, partners in a partnership and a Bare Trust. That reduces your tax. It is wonderful.

But companies and trusts (including a Unit Trust) cannot pass on the ‘loss’ to the shareholder or Unitholder. The loss is trapped in those vehicles. You can only ‘use up’ those losses by putting income-producing assets in the company or Unit Trust. “Negative gearing” is not possible unless the trust has other income to offset the losses.

A negative gearing loss on the property, for both the company and the Unit Trust, is trapped in both vehicles. You need other income to offset the loss.

You may be able to carry the tax loss forward to future financial years. If you cannot carry forward the losses to subsequent financial years, then the ‘loss’ is (pardon the pun) lost forever. 

Tax Advantages of a Legal Consolidated Australian Unit Trust

In the company, there is a fixed tax rate. It is a constant tax rate. In contrast, the Unit Trust’s Unit Holders pay tax on the profit at their personal tax rate, which may be zero. In other words, the company pays tax on income. In a Unit Trust, the Unit Holders themselves generally pay the tax.

How a Company pays tax:

Each financial year, the company pays tax on its profit. The tax paid attracts an ‘imputation credit’. The company may retain this profit. The company does not have to pay the profit to the shareholders. The company does not have to declare a dividend.

At some point in the future, it can pay that profit to the shareholder. This is called a dividend. Only at that time does the shareholder have to pay tax on the dividend. The payment of a dividend is income in the hands of the shareholder. However, the shareholder can use the imputation credit to reduce the tax it would otherwise have to pay. For example, let’s say the company has already paid tax on the income at a tax rate of 25%. It then distributes that income to the shareholders. If the shareholder’s marginal tax rate is 45% then the shareholder only pays an additional 20% tax on the dividend.

How a Unit Trust pays tax:

In contrast, a Unit Trust distributes all its income to the Unit Holders. This is at the end of each financial year. The Unit Holders then pay tax at their personal marginal tax rate. (Any income not distributed is taxed automatically at the highest marginal tax rate. This is in the hands of the Unit Trust trustee.)

If the Unit Holder does not earn much income that financial year, then the tax on the Unit Trust income may be zero. But if the Unit Holder earns a lot of money that financial year, then its tax rate may be far higher than the fixed (constant) company tax rate. This is why you often hold the Units in a Family Trust: rather than in your own name.

The advantage of a company is that it can retain income at a constant tax rate and not distribute it to shareholders. The shareholder’s tax rate may be much higher than the company’s tax rate. This sounds good, except that it is challenging to use company funds for personal purposes. The company’s assets and profits are ‘trapped’ within the company. But you did temporarily save (or rather defer) the higher tax rate.

In contrast, each financial year, the Unit Holder pays tax on the income it derives from the Unit Trust. (The Unit Trust is therefore not taxed directly.) Our Unit Trust deed allows you to reinvest the income back into the Unit Trust. However, the Unit Holder must still pay tax on the income first. What the Unit Holder then does with the money is at their discretion. If the Unit Holder wishes to reinvest the after-tax dollars in the Unit Trust, they may do so.

Family Discretionary Trust vs Unit Trust

Unit Trusts and family trusts serve different purposes:

• Unit Trusts have ‘negotiability’: you can sell and buy units, and fixed annual entitlements to income and capital gains. The unit holders receive 100% of their entitlement. The trustee has no discretion to vary your entitlement.
• In contrast, Family Trusts are discretionary. This means that there are no fixed entitlements for any particular beneficiary. Mum and Dad (as the Appointors) direct the Trustee of the Family Trust to distribute income. This is generally aimed at the lowest-income earners in the family to reduce the family’s overall tax burden.

Unit Trusts are not a substitute for Family Trusts. Both types of trusts are often used together. For example, a Family Trust often holds units in a Unit Trust.

Family Trusts work for one family. Unit Trusts are appropriate for two or more families, joint ventures, businesses or partnerships in the management of assets. Instead, if you control assets in a single family, consider building one of our comprehensive Family Trust Deeds.

Unit Trust vs a partnership of family trusts

A company and a family trust are usually inferior to a Unit Trust. The greatest competition to a Unit Trust is a Partnership of Family Trusts. See here.

Can the value of the units change over time?

Yes, the value of the Units can change over time. Today you issue Units for $1.00 each. If your business performs well or asset values increase, a unitholder may sell their Units for $5.00 each. Alternatively, the trustee of the Unit Trust may issue new Units at a higher price to prospective investors. That is a decision for the unitholders.

Can I update the Unit Trust deed?

Yes, you can update your Unit Trust for:

1. Change the name of the Unit Trust
2. Change the trustee of the Unit Trust
3. Update the Unit Trust deed

Build a Unitholders Agreement for the Unit Holders

Unitholders may debate what the Unit Trust will do and invest in. But this is not a matter of the Unit Trust deed. Rather, this discussion is based on the Unitholders Agreement. This is similar to a company’s shareholders’ agreement.

Unit Trusts suffer a fixed life of only 80 or 125 years

Some state governments do not want trust assets tied up forever. They aim to prevent assets from falling into disrepair. A trust usually cannot last more than 80 years (or 125 years in Queensland). This is called the Rule Against Perpetuities.

South Australia has not adopted the Rule Against Perpetuities. South Australian trusts can exist indefinitely. 

This Rule comes from English law. In 1682, the 22nd Earl of Arundel sought to control the succession of his titles for thousands of years. The UK Courts refused to grant an indefinite Trust. The Court limited the life of the Trust.

Will other states also abolish the Rule Against Perpetuities?

You might think the 80-year (or 125-year) limit is just a theoretical problem. It is not. It affects even the largest trusts.

Consider the Westfield Trust and Westfield American Trust. Collectively worth billions, they are governed by NSW law and are subject to the 80-year “Rule Against Perpetuities”. They started in 1982 and 1996, respectively. The clock is ticking. They must eventually vest and trigger a massive capital gains tax.

(For the history buffs: This rule comes from the 1682 case of the Earl of Arundel, who tried to control his titles for thousands of years. The English Courts refused to grant an indefinite Trust. Legal Consolidated drafts around this 340-year-old problem.)

Unit Trust 80-year (125-year) vesting period may be abolished – one day

Legal Consolidated continues to lobby the States and Territories to remove the rule of perpetuity. No doubt the lawyers at Westfields, and similar, are doing the same thing. There is a strong movement to abolish these rules. In 2025, Queensland led the way by increasing the time limit from 80 years to 125 years.

If the rule is abolished, then Legal Consolidated’s Unit Trusts, Family Trusts, Family Trust updates, and Bare Trusts are already drafted to extend the vesting period to infinity. This is automatic if the law is abolished.

Is it bad to have a trust come to an end?

On vesting, two taxes apply:

1. Capital Gains Tax (CGT) (Federal Tax)
2. Transfer (Stamp) Duty (State Tax)

All Australian Unit Trusts suffer CGT and (stamp) transfer duty. Therefore, Unit Trusts attempt to defer this liability by extending the Trust’s existence. Legal Consolidated trust deeds adopt this approach.

There are also family law and bankruptcy issues.

Using a Unit Trust as a Property Trust

A Legal Consolidated unit trust is an excellent vehicle for establishing a property trust, particularly due to its flexibility and structure, which is tailored for group investments in real estate.

Structure and Functionality of a Property Trust

In a Legal Consolidated unit trust, the trust itself owns the property, and investors buy units in the trust. Each unit represents a share of the trust’s property assets. This structure enables multiple investors to collectively own and benefit from real estate, which may be less accessible to them individually due to high capital requirements.

Tax Efficiency of a Property Trust

Unit trusts are known for their tax-efficient distribution of income. Income generated from the property, such as rental income, is passed directly to unit holders, usually in proportion to the number of units they hold. For the investors, these distributions are treated as personal income, allowing them to take advantage of any tax benefits associated with their personal tax situations, such as offsetting losses against other income.

Example of a Property Trust (Commercial Property Syndicate)

A Legal Consolidated unit trust is a widely used structure for business or investment purposes, where each beneficiary holds a predetermined share of the trust’s assets. Beneficiaries of a commercial property unit trust are allocated a portion of both income and capital appreciation proportional to their ownership stake in the trust’s assets.

For example, consider a property investment that issues 1,000 units of a property unit trust, representing $10,000,000 in commercial real estate. If you acquire 10 units of this trust, you effectively hold a 1% ownership interest. This entitles you to a corresponding 1% of the income generated and the capital growth from the properties.

In a unit trust, also referred to as a commercial property syndicate, numerous investors pool their capital to invest in one or more properties held within the trust.

Six advantages of using a Unit Trust as a Property Trust (Syndicate)

A unit trust structure provides several advantages for investors in commercial real estate, including:

1. 1. Pooling of Funds: It allows investors to pool their funds to purchase commercial real estate that would otherwise be too expensive for an individual to acquire.
   2. Income Distribution: It distributes pre-tax income to beneficiaries, who then pay tax at their personal income tax rate.
   3. Tax Minimisation: It helps in avoiding significant tax implications typically associated with direct property ownership.
   4. Cost Sharing: It facilitates splitting significant expenses associated with commercial property ownership among all investors.
   5. Regulatory Advantages: It is subject to less stringent financial regulation, which can be beneficial. For example, some investors use a Self-Managed Super Fund to invest in commercial real estate trusts.
   6. Professional Management: Investors benefit from having a professional property management team that manages the investment from due diligence and acquisition to divestment.

Who pays tax on Unit Trust income – the trust or the unit holder?

The High Court in Charles v FCT [1954] HCA 16; 90 CLR 598 confirmed that the interposition of a unit trust does not, for tax purposes, change the character or source of income in the hands of the beneficiary.

This is the high-water mark of what I have long called the “trust conduit theory”—the idea that income retains its character (e.g. interest or dividend) as it passes through the trust to the beneficiary. The Court said (at 609):

“…the question whether moneys distributed to unit holders… form part of their income or their capital must be answered by considering the character of those moneys in the hands of the trustees before the distribution is made.”

But even here, the Court was cautious. It did not state that the beneficiary receives the trustee’s income, only that the character is determined by what it was in the trustee’s hands—capital remains capital, and revenue remains revenue.

However, the theory does not apply in full unless the trust is a bare trust or the beneficiary has an interest in possession in the income as it arises. See FCT v Tadcaster Pty Ltd (1982) 13 ATR 245.

In Executor Trustee & Agency Co of SA Ltd v DCT (SA) [1939] HCA 35; 62 CLR 545, the High Court rejected the theory where the trustee exercised discretion. Latham CJ (at 558):

“In view of the fact that a discretion exists… it seems to me to be impossible to hold that the [beneficiaries] are entitled specifically to the rents and profits.”

So, even in unit trusts, while the character of income may flow through, the source and taxable nature depend on facts: the trustee’s activity, whether income is passive or business-derived, and the terms of the deed. See also Nathan v FCT.

Should a Unit Trust for property development also have a Unitholders Agreement?

The Unit Trust Deed is the correct legal vehicle for holding the property and securing finance from a bank. You also need a Unit Holders Agreement containing project-specific rules for profit distribution ‘waterfalls’, staged capital contributions, day-to-day management, and dispute resolution. The Unit Trust Deed provides the foundation; the Unitholders’ Agreement builds the commercial house on top of it.

See also:

Stamp duty when you transfer business real property from a Unit Trust to a Self-Managed Super Fund

Tax-effective business structures

Extending a Unit Trust’s vesting date

How to wind up and vest a Unit Trust

Unit Trusts that comply with foreigner stamp duty and land tax rules