The Benefits of Property Investment in a Unit Trust for Multiple Investors

By Jaye Mankelow


Investing in property through a unit trust provides a flexible structure for multiple investors, allowing them to pool resources, share compliance costs, and distribute income based on their investment. Particularly in New South Wales (NSW), a unit trust can provide additional benefits, such as stamp duty exemptions for certain transfers and tax efficiencies, making it an appealing option for families, business partners, and unrelated investors.

This article explores the advantages of property investment in a unit trust, focusing on how it enhances flexibility, tax efficiency, and compliance for groups of investors.

What is a Unit Trust?

A unit trust is an investment structure where multiple investors (unit holders) pool funds to acquire property or other assets. Each investor’s share is represented by units, which determine their proportion of income, tax benefits, and capital growth from the investment. Unlike direct property ownership, unit trusts allow multiple parties to divide ownership while retaining flexibility and protecting personal assets.

• Flexibility in Ownership: Investors can transfer or sell units, enabling easy entry and exit without disrupting the overall ownership structure.

Advantages of a Unit Trust for Property Investment

Investing in property through a unit trust offers distinct advantages, including resource pooling, cost-sharing, and a protective structure.

• Pooling Resources: By pooling funds, a unit trust allows investors to access larger or higher-quality properties than they might individually afford. This collaborative approach also diversifies portfolios, allowing for access to properties in prime locations, which could enhance returns.
• Income Distribution Flexibility: The unit trust structure provides proportional income distribution to unit holders based on the number of units they hold, making it straightforward to calculate tax obligations and distribute income accordingly.
• Shared Compliance Costs: Compliance requirements, including BAS submissions and financial reporting, are consolidated within the trust, meaning unit holders share these administrative expenses. This reduces individual compliance costs while maintaining necessary regulatory filings.

Example: Three investors form a unit trust to purchase an industrial property, each contributing a third of the funds. They share income and expenses proportionally, reducing individual financial burdens while collectively benefiting from rental income and capital growth.

Stamp Duty Exemptions and Transfer Benefits in NSW

One of the benefits of a unit trust in NSW is the potential stamp duty exemption for certain unit transfers. In NSW, transfers of units between related parties, such as from personal ownership to an SMSF, may be eligible for a stamp duty exemption under certain conditions.

• Stamp Duty Threshold: A threshold exists in NSW that determines eligibility for stamp duty exemption on unit transfers. Being mindful of this threshold is important when transferring units, especially when restructuring or moving units between family members or personal entities.
• Transferring to an SMSF: Investors often hold units in their name initially, then gradually transfer these units to their Self-Managed Superannuation Fund (SMSF) over time as part of retirement planning. This transfer strategy allows the individual to continue benefiting from the investment in a tax-effective way within their superannuation.

Example: A property investor initially holds units in their name, then transfers the units gradually into their SMSF over time. By transferring units they can manage stamp duty expenses effectively while aligning the property investment with their long-term retirement goals.

Tax Efficiency and Capital Gains Benefits

Unit trusts offer significant tax advantages, especially regarding income distribution and capital gains.

• Tax Benefits on Income Distribution: Income from the property is distributed to unit holders, allowing each to be taxed individually at their marginal tax rate. For investors in lower tax brackets, this can reduce the tax burden on rental income.
• Capital Gains Tax (CGT) Discounts: Unit trusts can qualify for the 50% CGT discount if the property is held for more than 12 months. When sold, each unit holder pays CGT on their share, potentially at a reduced rate if eligible.
• Deductions and Depreciation: Unit holders can claim deductions on expenses and depreciation, further reducing the tax liability associated with their investment.

Note: Professional tax advice is recommended to ensure compliance and maximise deductions according to individual circumstances.

Ease of Entry and Exit for Investors

A unit trust provides a straightforward way for investors to enter or exit the investment without affecting the property’s ownership or operation.

• Transfer of Units: Unit holders can transfer or sell units to other investors or new buyers, offering liquidity and flexibility not typically available in direct property ownership.
• Ownership Adjustments: Existing unit holders can buy or sell units, allowing them to increase or decrease their investment based on financial goals or life changes.
• Smooth Succession Planning: For family or partnership investments, unit trusts simplify succession by allowing units to pass to heirs, keeping property ownership within the family without requiring title changes.

Example: An investor in a unit trust wants to reduce exposure and sells part of their units to another family member. This enables them to maintain a smaller interest in the property while allowing the family member to increase their ownership share seamlessly.

A Practical Structure for Family and Joint Investments

For families, business partners, or friends, a unit trust offers a versatile structure that balances flexibility and shared control. Unlike companies, unit trusts provide a straightforward framework for managing property investments collectively, with minimal governance overhead.

• Defined Roles and Rights: Investors can set clear terms for income distribution, decision-making, and asset management in the trust deed, promoting transparency and alignment.
• Inter-Generational Wealth Transfer: Families can use unit trusts to preserve and pass property investments to future generations. By establishing transfer and succession terms, the trust can ensure continuity and income benefits for beneficiaries.

Investing in property through a unit trust provides a flexible, tax-efficient, and cost-effective structure for multiple investors.

The shared compliance costs, the potential for stamp duty exemptions in NSW, and flexibility in income distribution make unit trusts an attractive option for families, business partners, and other investors seeking to pool resources and maximise property investment returns.

If you’re considering property investment through a unit trust, Aspira can guide you through the setup process, tax implications, and transfer strategies, ensuring that your investment aligns with both your current financial needs and long-term goals.

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