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Mark Baghdassarian

Apr 04, 2023

Widely Held vs Closely Held Unit Trust

in SMSF Technical Forum

Dear SMSFAAA

Im reading the definition of a widely held unit trust vs a closely held unit trust

Widely Held: Units in the trust issued to the public AND 50 or more persons beneficially entitled AND more than 20 persons entitled to at least 75% of total units

Closely Held (per ITAA1936): The only defining points are that: 'Up to 20 individuals have entitlements of 75% or greater' or 'a discretionary trust'.

See the gap? What if there are 30 individuals holding 60% (so, not a closely held) yet doesn't meet the definition of a widely held trust?

Is there another legally (or otherwise) defined type in the middle here?

3 comments

Comments (3)

THE AUDITORS INSTITUTE

Apr 05, 2023

Hi Mark

The SIS / tax rules are complicated in the way they work together.

The widely held trust definition is relevant for the in-house asset and acquisition of asset rules.

You then have rules in relation to what is a related party under SIS.

You need to relate the SIS legislation to the example you have and apply the relevant SIS legislation.

Thanks

SMSF AAA

THE AUDITORS INSTITUTE

Apr 11, 2023

Replying to

Hi Mark

My reading of SIS is that it only refers to a widely held trust & it states at section 71 that (re in-house assets):

(1A) For the purposes of paragraph (1)(h), a trust is a widely held unit trust if:

(a) it is a unit trust in which entities have fixed entitlements to all of the income and capital of the trust; and

(b) it is not a trust in which fewer than 20 entities between them have:

(i) fixed entitlements to 75% or more of the income of the trust; or

(ii) fixed entitlements to 75% or more of the capital of the trust.

For this purpose, an entity and the Part 8 associates of the entity are taken to be a single entity.

That is from a SIS perspective a closely held trust is not relevant.

From a SIS perspective a Fund is able to invest in unit trusts if:

1) The trust is an unrelated trust (eg. 50% or less of the units are owned by the Fund / its related parties).

2) The Trust is a non-geared unit trust (that meets the relevant SIS Regulations - refer SIS regulation 13.22C).

There is also an exemption in place for pre 11 August 1999 unit trusts invested by a SMSF pre this date.

An article from DBA Lawyers gives guidance at:

Thanks

SMSF AAA