Deemed Income from Public Unit Trust Investments

Application of deeming to public unit trusts

Public unit trusts may be listed on the Stock Exchange. Whether listed or not, they are:

  • treated as managed investments, and
  • subject to deeming.
Public unit trust investments

Public unit trusts are:

  • operated under the protection of a trustee,
  • set up with specific investment objectives, such as shares in equity, imputation or property trusts, and money market investments such as cash management trusts.
  • group investments, which enable individual investors to benefit from the pooling of funds invested by a fund manager, and
  • unit linked, meaning the sum invested is converted into units, each of which entitles the unit holder to a specific proportion of the fund's assets and income.
Return on unit linked investments

The return on unit linked investments may be:

  • changes in unit value,
  • the issue of additional, bonus units, or
  • interest allocations.

If the unit price remains fixed, the return is in the form of interest allocations only, as with cash management and mortgage trusts.

Investment options

Investors may have one of the following three investment options with a unit trust investment:

  • both income and capital growth,
  • capital growth only, or
  • income only.
Types of public unit trusts

The following table describes the different types of public unit trusts.

Type

Description

Common fund

Unit trusts operated by a public trustee company. Most common funds are similar to cash management trusts, as the:

  • unit price is fixed, and
  • investor returns are entirely through income distribution.

Common funds, depending on the portfolio of the fund, may also be similar to:

  • equity trusts, or
  • property trusts.

Cash management trusts

Cash management trusts:

  • allow small investors to participate in the money market, and
  • are income investments only.

Investors purchase units in the trust, and the trust manager invests the funds in government, semi-government, and other short term fixed interest securities.

Type

Description

Mortgage trusts

Mortgage trusts are:

  • established to invest pooled funds in first mortgages over property, and
  • income investments only.

During the life of the loan the trust receives interest, which is passed on to unit holders as distributions of income, usually monthly or quarterly.

Bond trusts

Bond trusts:

  • invest pooled funds in the Australian and/or overseas bond markets, and
  • provide for capital gain  and income distribution.

They are also known as:

  • income trusts,
  • fixed interest trusts, and
  • public security trusts.

Type

Description

Property trusts

Property trusts:

  • buy, hold and sell properties and often rent them out, and
  • may offer a choice of units with returns made up of various combinations of capital growth and income.

Capital growth is through:

  • increased property values, and
  • the sale of property holdings at a profit.

Income distributed to unit holders is generally from rents received on the properties.

Equity and imputation trusts

Equity trusts:

  • invest primarily in Australian and/or overseas shares, and
  • provide investors with a combination of both capital gains and dividend income, such as Australian and International Resources Trusts.

Imputation trusts are equity trusts that take advantage of the dividend imputation provisions of the Income Tax Assessment Act.


Source URL: https://clik.dva.gov.au/compensation-and-support-policy-library/part-9-principles-determining-pension-rate/95-deeming-provisions/956-deeming-managed-investments/deemed-income-public-unit-trust-investments