Save $6,592 in Land Tax A unit trust can be an excellent structure for holding real estate investments jointly with other parties, but if Investors choose the wrong unit trust it could result in the loss of the Land Tax property value threshold - meaning unit trust could pay around $6,592 more every year in land tax than an individual property investor.  This problem arises because, for the purchase of calculating land tax, the NSW Government classifies unit trusts as "Special Trusts". For a unit trust to be entitled to the property value threshold in NSW, all unit holders must have a fixed entitlement to the trust's assets and to the trust's income and the unit trust must own land in NSW. The good news is, there is a trust structure available that does provide investors who hold property in NSW with access to the property value threshold for land tax purposes. They would be ill-advised to use any other unit trust, if cost is the only consideration in our opinion. Our has been approved by the NSW Office of State Revenues as a 'fixed trust' deed under Section 3A of the Land Tax management Act. Click here to read. This means that if a property is purchased using our fixed unit trust deed , it will give the trustee access to the property value threshold which is $412,000 for 2014 year. If this threshold was not available, then the trust would be subject to 1.6% land tax. A copy of the NSW State Revenue approval letter is on our website. Similar rules exist in other states and our clients have successfully applied and received approvals in other states. That solves the land tax issue, but what does a client need to know before choosing to use a Fixed Trust structure for holding property? For starters, we strongly urge all clients to seek expert legal advice on the suitability of using a fixed trust structure. We are not able to give advice at an individual level on the accounting and land tax implications. However, we can give an outline of how a fixed trust works so you can assess whether it is right structure for you. Character or our Fixed Unit Trust 1) A fixed unit trust essentially means the rights of the unit holders to income and capital are fixed. In other unit trusts, the trustee may have some discretion (depending on the trust deed) over how income and capital are to be distributed to various unit holders. Fixed unit trust has only one type of rights (income and capital) and obligations, which means that all investments are uniform and rights of each holder is equal and voting is based on number of units held by each person or entity. 2) The trustee owns the property of the trust and must distribute the entire income of the trust every year to its unit holders. The trust cannot accumulate any income from one year to the next. 3) The trust runs for a period of up to 80 years. On its termination or vesting date, all unit holders are entitled to the whole of the trust fund according to their unit holding.  4) The unit holders are in control of a Fixed Trust. This is because the trust deed gives them the power to direct the trustee and, if necessary dismiss the trustee and appoint another. The trust deed should specify the percentage vote required for a unit holders' resolution to be effective and in our deed this threshold is 75%. In our professional opinion, it is best to have a corporate trustee. This involves the formation of the new company, in which all (or some) unit holders are directors. 5) It is well worth re-stating the advantages of a corporate trustee when advising SMSF clients as to whether or not they should be using a Fixed Trust: a) If the trustee is a company it is difficult for the assets of individual trustees to be confused with those of the trust b) The ownership of assets doesn't have to be changed in the event of the death of a director of the corporate trustee whereas, if the trust has individual trustees, all trust assets would need to be transferred into the name of the new individual trustee. The disadvantages of using a corporate trustee are largely the additional cost of setting up and running the company each year. 6) The mandatory distribution of net income to unit holders means income received must be included in the year when the trust has earned income (not in the year when the income is distributed). If one of the unit holder is an SMSF, income received from the Fixed Trust will be taxed at the concessional rate. 7) Our Fixed Trust cannot distribute losses (capital or revenue) to its beneficiaries (unit holders). Any losses have to be carried forward until a profit is made. This means unit holders are not able to offset losses from the trust against other assessable income. 8) If the fixed unit trust has not borrowed money or if the self managed super fund does not control the trust, then it is possible for the SMSF to acquire units in a fixed unit trust from related parties. For example, a SMSF invests $200,000 in a fixed unit trust and the member of the SMSF invests the other $200,000 and the fixed unit trust purchases a property with $400,000. It is possible in future with new contributions and income, the fixed unit trust It is also possible to vary a trust into a fixed unit trust, however some variation could amount to re-settlement and stamp duty may apply. We recommend that you consult your adviser with a copy of your existing trust deed. 
Any new purchases with your self managed super fund can be with a fixed unit trust instead of the super fund borrowing under a limited recourse borrowing arrangement or where two or more self managed super fund decide to get together and get involved in property development. However, please note that there are some very strict SIS Act rules regarding in-house assets which must be followed. There are opportunities under SIS Regulation 13.22C where some trustees can benefit, if the fixed unit trust does not borrow and some other conditions must apply. To learn about these exciting strategies attend our seminar below on how fixed unit trust can be used by a self managed super fund for investments & property development. | 
