Setting up a unit trust in Australia is a powerful way to structure investments and business partnerships—especially when multiple unrelated parties are involved. However, if not done correctly, it can lead to tax inefficiencies, compliance issues, or even an invalid structure.
This comprehensive guide explains everything you need to know—from setup steps and tax treatment to compliance and common mistakes—so you can establish your unit trust the right way from day one.
What Is a Unit Trust in Australia?
A unit trust is a structure where ownership is divided into fixed portions called units, similar to shares in a company.
If you own 40% of the units, you’re entitled to:
- 40% of the trust’s income
- 40% of the capital
Key Roles:
- Trustee – Manages the trust and holds assets (ideally a company)
- Unit Holders – Investors who own units and receive income
Unlike discretionary trusts, distributions are fixed—making unit trusts ideal for clarity and fairness.
When Should You Use a Unit Trust?
A unit trust is best suited for situations involving unrelated parties and fixed ownership.
Ideal Use Cases:
- Property Investment – Multiple investors pooling funds
- Joint Ventures – Shared projects between businesses
- Business Partnerships – Structured profit sharing
It ensures transparency and reduces disputes due to fixed entitlements.
Unit Trust vs Discretionary Trust vs Company
| Feature | Unit Trust | Discretionary Trust | Company |
|---|---|---|---|
| Ownership | Fixed (units) | Flexible | Shares |
| Income Distribution | Fixed | Trustee decides | Dividends |
| Flexibility | Low | High | Moderate |
| Asset Protection | Good | Good | Excellent |
| Best For | Joint ventures | Families | Trading businesses |
Key Requirements to Set Up a Unit Trust
To ensure compliance in Australia, you must have:
1. Professionally Drafted Trust Deed
This is your legal rulebook. A poorly drafted deed can be challenged by the Australian Taxation Office.
2. Trustee
A corporate trustee is strongly recommended for:
- Asset protection
- Continuity
- Risk separation
3. Unit Holders
Owners of the trust units, recorded in a register.
4. Settlor & Settlement Sum
A third party contributes a nominal amount (e.g., $10) to legally establish the trust.
Step-by-Step: How to Set Up a Unit Trust in Australia
Follow this structured process:
Step 1: Choose Structure & Appoint Trustee
Decide on unit trust and register a company if using a corporate trustee.
Step 2: Draft & Execute Trust Deed
Have a professional prepare and execute the deed properly.
Step 3: Issue Units
Allocate units based on investment and record them officially.
Step 4: Apply for ABN & TFN
Register through the Australian Business Register (ABR).
Step 5: Register for GST (If Required)
Mandatory if turnover exceeds $75,000.
Step 6: Open Bank Account
Use the exact trust name for all transactions.
Step 7: Maintain Compliance Records
Keep:
- Trust deed
- Unit holder register
- Financial statements
- Tax returns
Setup Costs & Ongoing Compliance
| Item | Type | Cost (AUD) | Purpose |
|---|---|---|---|
| Trust Deed | One-time | $300 – $1,000+ | Legal framework |
| Corporate Trustee | One-time | ~$576 | ASIC registration |
| ASIC Annual Fee | Ongoing | ~$310 | Company compliance |
| Accounting & Tax | Ongoing | $1,000 – $3,000+ | Reporting & lodgement |
Important:Annual distribution resolutions must be completed before 30 June—or income may be taxed at up to 47%.
Tax Treatment of Unit Trusts in Australia
Unit trusts are generally flow-through entities.
How It Works:
- Trust income is distributed to unit holders
- Unit holders pay tax at their marginal rates
- Trust usually pays no tax
Key Tax Points:
- Income split based on unit ownership
- 50% CGT discount may apply
- Undistributed income may be taxed at top rate
Proper compliance with ATO rules is critical.
Worked Example: Property Investment
Scenario:
- Property Value: $800,000
- Investor A: 60% ($480,000)
- Investor B: 40% ($320,000)
Annual Income: $40,000
- Investor A receives: $24,000
- Investor B receives: $16,000
Each pays tax individually. The trust pays none.
Unit Trust Setup Checklist
- Confirm suitability
- Choose trust name
- Appoint corporate trustee
- Draft trust deed
- Pay settlement sum
- Issue units
- Apply for ABN & TFN
- Register GST (if needed)
- Open bank account
- Maintain compliance
Common Mistakes to Avoid
| Mistake | Risk | Solution |
|---|---|---|
| Cheap trust deed | Invalid structure | Use professionals |
| No corporate trustee | Personal risk | Set up company |
| Missing distribution resolution | 47% tax | Plan before June 30 |
| Mixing finances | Compliance issues | Separate accounts |
Frequently Asked Questions
What’s the difference between unit and discretionary trust?
Unit trusts have fixed distributions; discretionary trusts are flexible.
Is a unit trust a fixed trust?
Yes, generally—unit holders have fixed entitlements.
Can a unit trust own property?
Yes, it’s widely used for property investment.
How is it taxed?
Income flows to unit holders, who pay tax individually.
Do I need a corporate trustee?
Not mandatory, but highly recommended.
What does it cost to set up?
Typically between $900 to $2,000+.
Final Thoughts
A unit trust is a powerful structure—but only when set up and managed correctly. From legal documentation to tax compliance, every step matters.
- Getting professional guidance ensures:
- Legal compliance
- Tax efficiency
- Asset protection
- Long-term success
Get Expert Help from Supertax
Let our experts handle your unit trust setup with precision and compliance.
Phone: (03) 7074 8818
Email: info@supertax.com.au
Website: https://supertax.com.au/
Address: Suite 1, 7 Bridge St, Werribee Victoria 3030, Australia
This article contains general information only and does not take your personal circumstances into account. Tax and superannuation rules change, and some measures discussed may be subject to legislation. Speak with a registered tax agent before acting.
Need advice on your situation?
Book a free 15-minute consultation with a registered tax agent at Supertax.
