Hybrid Trust

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A Hybrid Trust is a cross between a Discretionary and a Unit Trust. This type of structure is quite appealing because it includes the benefits of both and is an extremely useful structure. You can split the trust up into units while also having beneficiaries to distribute to at your discretion.
Hybrid trusts take the best features of a discretionary trust and the best features of a unit trust and blend them in the one entity to create a flexible structure. They allow the respective rights and entitlements of unrelated third parties to be respected, and once this is done, between those parties and all related persons (e.g spouses, children, related family trusts and so on).
The income tax, capital gains tax and asset protection attached to hybrid trusts means that they are often the preferred method of structuring a business or investment activity. This is particularly where more than one un-related party is involved: for example, two separate family groups who are buying a commercial property together.


Hybrid Trusts – Features & Benefits:

  • With a corporate trustee – limited liability.
  • Provides more flexibility with tax planning.
  • Ability to issue and redeem units with no stamp duty in some States.
  • Income and Capital Gains taxed in the hands of beneficiaries.
  • Benefits / income can be passed to beneficiaries without change in ownership of the investments.
  • Control of investments can effectively be retained by the appointer of the trustee who normally places the asset in the trust.
  • Confidentiality of information as there is no statutory disclosure requirements.
  • No audit requirements – Accounts for Income Tax Return preparation only.
  • Easy entry and exit of owners.
  • Trusts are relatively simple to wind-up.
Related:  Tips to Improve Depreciation Deductions This Tax Time


  • Cost of creation and administration of the trust is higher than an Individual or Partnership;
  • Potential changes to legislation – Taxation of Trusts;
  • Careful structuring required for negatively geared investments as Capital and Revenue losses could get quarantined in the Trust;
  • Possible Land Tax treatment as a Special Trust in Victoria and N.S.W.; and
  • When grossed up dividends are less than net losses from other sources, the refundable franking credit is lost and the carry forward losses are reduced by the amount of franking credit lost.
  • The ATO issued a Tax Determination against these Trusts used for property investment. Refer to our Property Investors Trust (PIT) which has an Approved Product Ruling from the ATO for property investments.


Talk to a Chan & Naylor accountant about whether or not a Hybrid Trust is right for your situation. Contact us today!

6 responses to “Hybrid Trust”

  1. Prem Saraswati says:

    I have a trust from your company. The main reason we used this is Chan and Naylor advised any losses could be attributed to Income unit holders and used by them in their personal tax. My account says this is not possible. Can you remind me how losses for income unit holders can pass to their personal tax please.

    • Marco De Gouveia says:

      Hi Prem
      Thanks for your comment and excellent question. Apologies for the delayed response. The answer to that would depend on your specific circumstances and the specific type of trust used.
      I’d recommend that you speak to a Chan & Naylor Partner or senior client manager. The best way to get in touch, is to please complete the enquiry form at – please leave your your contact information and your question and further details on that form – the details of same would be confidentially and automatically passed on to an experienced accountant at the office of your choosing.
      Thanks Prem


    • Ed Chan says:

      Dear Prem,
      The way you can claim the losses against your personal tax return is by borrowing the loan in your own name to invest in units in the PIT.
      The PIT than buys the investment property and the rent from the tenant is deposited into the PIT which is used to pay for all expenses associated with the investment property. This leaves a net rent that is distributed to the Unit Holder and the unit holder can claim the interest paid to the bank as a tax deduction. The negative gearing is therefore claimed against the unit holders income.

      It’s best to ask a Chan & Naylor trained accountant to ensure the tax return reflects the spirit of the structure otherwise the ATO will deny your deduction. Whilst we have an ATO Product Ruling for our PIT but it requires an accountant to prepare the financials and tax return to reflect exactly what’s stated in the Product Ruling.

      Ed Chan

  2. Josh S says:

    My partners and I are set up in a hybrid trust. I am looking to sell but worry my partners will try to introduce new units to dilute my ownership prior to selling.

    Do I have any security around my units and ownership?

    How can I protect my self?

    • Chan & Naylor says:

      Without more detailed information on your circumstances, this is only a very limited response. It’s generally the Trustee of the Trust that can issue more units, and if it’s a private Trust of this nature, normally, the unit holders are also the Trustees – whether individually or as Directors in a Company who is the trustee. Also, the Trust Deed dictates what the Trustee can and cannot do. Furthermore, the Appointors who are stated in the Trust Deed have all the powers. As a Unit Holder, you are entitled to have a copy of the Trust Deed.

  3. nicki says:

    Very good information. Lucky me I came across your blog by chance (StumbleUpon). I have bookmarked it for later!

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