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Hybrid Unit Trust Deeds

Whenever you are considering an appropriate business structure for your clients’ personal, business and investment needs, there are a number of issues and criteria to be considered. These include:

  • The protection of existing and future assets from financial misadventure;
  • Taxation flexibility - income tax, CGT, payroll tax, stamp duty and GST;
  • Control of the structure;
  • Capacity to cope with entry and exit from the structure.

Flexibility is one of the most important attributes of any business structure.  A flexible structure will more often than not provide better asset protection and better taxation/revenue results.

Cleary Hoare’s Hybrid Unit Trust combines the flexibility and asset protection benefits of a fully Discretionary Trust with the commercial advantages of a Unit Trust to create a structure that provides:

  • Proportionate ownership;
  • Commercial flexibility;
  • Income streaming and taxation flexibility; and
  • Asset protection.

If you want to create a Hybrid Trust, please click HERE to download our Instruction Sheet.

Using Hybrid Unit Trusts

Cleary Hoare recommend the use of Hybrid Unit Trusts where a business or investment has multiple owners. For example:

  • When two or more families are involved in a business;
  • Structuring for a new business that anticipates the need to bring in a new partner or owner at a later date;
  • When a business wishes to issue equity to employees or other parties.

The Cleary Hoare Hybrid Unit Trust Deed

Cleary Hoare’s Hybrid Unit Trust is a unit trust where each ordinary unitholder has a fixed interest in proportion to their equity (unit holding).

The hybrid nature of the Trust Deed allows for the issue of fixed equity (ordinary) units or discretionary income units to unitholders.  The trustee also has the ability to distribute to a wide range of fully discretionary individual, trust, or corporate beneficiaries without disturbing the fixed entitlements of existing unitholders.

The trustee has the discretion to allocate income (and capital) amongst discretionary beneficiaries before the balance on the income “falls” to the ordinary unitholders in proportion to their unit holding.  These discretions cannot be exercised without the unanimous consent of the unitholders.

The discretionary beneficiaries generally consist of individuals and entities related to the unitholders.

The unique features of the Cleary Hoare Deed:

  • Specifically allows for income to be determined either in accordance with income tax law under Section 95 of the Income Tax Assessment Act 1936 (Cth) or in accordance with ordinary income concepts (Commissioner of Taxation v Bamford [2010] HCA 10).
  • Provides powers to stream tax credits (such as franking credits) and capital gains to different beneficiaries.
  • Has the ability to distribute concessionally taxed capital gains (including the Active Asset Reduction) to beneficiaries without the application of CGT event E4 (formerly Section 160ZM); 
  • A controlling individual can be established for the purposes of small business CGT relief where the units are owned by discretionary trusts or companies (Section 152-55(3)); and
  • Distribution of discretionary trust net profit or capital to a range of discretionary beneficiaries, including employees if required.

Trust Deed Reviews

Existing Unit Trust Deeds can be converted to include hybrid provisions to provide clients with the additional flexibility and benefits that the Cleary Hoare Hybrid Unit Trust Deed provides.

If you would like to convert your ordinary Unit Trust, or you would like any further information about the Cleary Hoare Hybrid Unit Trust, please contact Cleary Hoare directly to speak to one of our specialist Solicitors.