Unit trusts treated as corporate entities
Certain unit trusts are treated and taxed as corporate tax entities.
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Public trading trusts
Under Division 6C of Part III of the Income Tax Assessment Act 1936 (ITAA 1936), a public trading trust (PTT) must be both:
- a trading trust (broadly, a trust that carries on activities other than holding solely passive investments such as shares, land and fixed interest assets); and
- a public unit trust.
PTTs lodge a company tax return using a company TFN.
Legislative amendments to modify Division 6C in 2016 resulted in some trusts ceasing to be public trading trusts for income years starting on, or after, 1 July 2016 ('affected trusts').
Trustees of these affected trusts must consider the impact of these changes on the trust's registration requirements and tax obligations.
An affected trust will still be treated as a corporate tax entity and lodge a company tax return using its current company TFN for income years on or after 1 July 2016 if it has made a choice, under Subdivision 713-C of the Income Tax Assessment Act 1997, to be the head company of an income tax consolidated group.
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Corporate unit trusts
Unit trusts that were corporate unit trusts (CUTs) under the former Division 6B of Part III of the Income Tax Assessment Act 1936 will cease to be CUTs for income years starting on, or after, 1 July 2016 as a result of the repeal of Division 6B.
Trustees of these affected trusts must consider the impact of these changes on the trust's registration requirements and tax obligations.
Some affected trusts may satisfy the requirements of a public trading trust, and if so, will be taxed as a corporate tax entity under Division 6C. These trusts will lodge a company tax return using their current company TFN.
An affected trust will still be treated as a corporate tax entity and lodge a company tax return using its current company TFN for income years on or after 1 July 2016 if it has made a choice under Subdivision 713-C of the Income Tax Assessment Act 1997 to be the head company of an income tax consolidated group.
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Ceasing to be a public trading trust or a corporate unit trust
A trust that ceases to be a public trading trust, or a corporate unit trust, will cease to be treated and taxed as a corporate tax entity.
A trust that ceases to be treated as a corporate tax entity should:
- in the final income year of being treated as a corporate tax entity, lodge its company tax return using its current company TFN and indicate that the return is its final return
- cancel its ABN (if it is linked to its company TFN)
- for the following income year:
- apply for a new trust TFN and ABN (if it does not already have an appropriate trust TFN and ABN) and lodge a trust tax return
- use the trust TFN and ABN for its tax and superannuation obligations.
If the trust becomes eligible to be treated as a corporate tax entity for a later income year, it is to:
- apply for a company TFN to lodge a company tax return for that income year
- use its company TFN for its PAYG instalment obligations; and
- continue to use its trust TFN and ABN for all other tax and superannuation obligations.
The trust can apply for a new TFN and ABN at any time at abr.gov.auExternal Link if it does not have an existing trust TFN and ABN or an existing company TFN (as appropriate).
Franking credits
A trust that ceased to be taxed as a corporate tax entity as a result of the 2016 amendments which repealed Division 6B and modified Division 6C will have until 30 June 2019 to use any surplus in its franking account, provided that the trust meets any imputation integrity rules.
When completing its trust tax return, the trust should refer to the trust tax return instructions. While required to keep records on its franking account or franking credits, the trust is not required to provide this as part of the return.
The trust, however, must issue a distribution statement to each member who receives a distribution, showing the amount of the franking credit attached to the distribution and the extent to which it is franked. The trust is also required to include the distribution information in the Annual investment income report (AIIR).
Unit holders
If you are a unit holder and receive a trust distribution, you should refer to any distribution statement from the trust and complete your income tax return accordingly.
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Trust losses
All trusts, whether or not treated as a corporate tax entity, must apply the trust loss rules in Schedule 2F of the ITAA 1936 if they wish to use a tax loss to reduce the trust's net income.
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Certain unit trusts are treated and taxed as corporate tax entities.