Fixed Unit Trust vs Standard Unit Trust … what is the difference!?

Hi Everyone
 The Difference between a Fixed Unit Trust(FUT) and an Ordinary Unit Trust(OUT) is mainly the definition of their rights of unit ownership.

In a FUT the unit holders are deemed to have a greater equitable interest in the asset held by the FUT. For example, in an OUT the right to redeem units is usually at the discretion of the trustee where as in the FUT the unit holder has the right to demand the redemption of the units.

Therefore, if the unit holder becomes bankrupt, the receiver in bankruptcy can takeover the ownership of the units in the trusts and demand that the trustee redeem them thereby triggering the sale of assets with the proportional funds going to the receiver and hence you will not achieve asset protection via a FUT and for land tax purposes you will be assessed like a partnership and retain a land tax threshold. 

For clients of ours who are in NSW and its their first property we usually recommend they use our “Fixed Property Trust” which is treated similarly to a FUT except we have other benefits such as no vesting date that are more specific to properties.

The FPT gets the NSW land tax threshold but as pointed out above asset protection is primarily lost  For an Ordinary Unit Trust (OUT) the unit holders are deemed to simply have a Right or Entitlement to the Trust but not necessarily an interest in the actual asset of the Trust. Hence, for land tax purposes the OUT do not get a land tax threshold because they do not have an interest in the land but simply an entitlement to the total assets of the Trust and not to specific assets of the Trust like FUT. Hence, an OUT is treated like a “Special Trust” and loses its land tax threshold. 

Recently there was a Victorian case called CT Custodian v’s OSR which cleared the definitions and they changed the land tax rules to reflect the test case results. Depending on the clients needs we would either recommend our “Fixed Property Trust” if this is the client’s first property and he needs to retain his land tax threshold which is a savings of up to$6000 in land tax p.a. based on the available land tax threshold of $359,000.

However, if this is the clients second or third property and he has “used up” their land tax threshold than we recommend they go into our "Property Investors Trust™ " because it gives you all the other benefits and was specifically set up for properties but it does not get a land tax threshold in NSW.

However, if the client already has other investment properties and have “used up” their threshold than they are not disadvantaged.

Hope this helps

Regards
The Team at Chan & Naylor
http://www.chan-naylor.com.au

Hi Terryw,
You are correct in stating that South Australia is the only State without a law on Perpetuities. The Company has to be established in SA and they can certainly work for properties held outside that State.
The Directors can also live in another State.
Obviously its not as simple as setting up a Company is SA. We have spent many years with our lawyers getting around the Vesting Dates problems because of our property strategies where the properties were never sold but passed from generation to generation and when we first raised this with our lawyers they stated it could not be done due to both State and Federal laws. In fact they came back with 6 pages of things we needed to overcome. Over the years and tens of thousands of dollars later we found a way around the problem one at a time until after many years we were able to finally find a solution to each and every obstacle until the lawyers signed off on it around 18 months ago.
We than Trade marked the PIT™ as we did not want our hard work plagiarised as people often try to do. Naturally the Vesting date was only one of many other benefits.  

Hope this helps.
Regards
The Team at Chan & Naylor
http://www.chan-naylor.com.au