What's the difference between an ordinary unit trust and a fixed unit trust?
Where a trust incurs tax losses, certain rules need to be satisfied in order to claim those losses. The rules for claiming the losses depend on whether the trust is a 'fixed trust' or a 'non-fixed trust'.
A trust is a fixed trust if persons (i.e., individuals, companies, trusts etc.) have fixed entitlements to all of the income and capital of the trust, but this does not necessarily mean that all unit trusts will be fixed trusts.
For a unit trust to be a fixed trust, the trust deed must specify that units can only be redeemed or issued for a price determined on the basis of the net asset value, according to Australian accounting principles, of the unit trust at the time of redemption or issue. Our deed contains clauses to this effect.
If the trust deed allows for other methods of valuing new units or the redemption of units then the trust will be a 'non-fixed trust'.
Generally, a fixed trust can carry forward any losses it makes, to be offset against future income, if it satisfies the "50% stake test". Basically, this test requires that the same individuals must have had, at all relevant times, more than a 50% stake in the fixed trust (i.e., more than a 50% stake in the income and capital of the trust between them). A fixed trust must also satisfy the 'income injection test'.
For a non-fixed trust to be able to carry forward its losses, it may not only need to satisfy the 50% stake test, but also the 'pattern of distributions test', the 'control test' and the 'income injection test'. Although this is more difficult, it is important to note that a non-fixed trust can still carry forward losses provided it satisfies the relevant tests.