Non-Geared Unit Trusts for SMSF Investors

For self-managed super fund (SMSF) investors, a non-geared unit trust can be an effective way to access pooled assets while staying compliant with superannuation rules. But what is a non-geared unit trust, and why might it suit your SMSF?

A unit trust is a structure where assets are divided into defined units, giving each unitholder a proportional right to the trust’s income and capital. Unlike company shares, unitholders have a direct interest in the trust’s underlying assets. This makes unit trusts a popular choice for SMSF investments.

A non-geared unit trust is a unit trust with strict limits: it holds no borrowings, loans, or charges over its assets. These rules are crucial for SMSFs because superannuation law limits in-house assets to 5% of a fund’s total value. By investing in a non-geared unit trust, an SMSF can often exclude the investment from in-house asset calculations—provided the trust avoids related-party loans, guarantees, or non-arm’s-length transactions.

Establishing a unit trust involves a trustee and unitholders subscribing for units. Once set up, the trustee opens a bank account in the trust’s name, manages investments according to the trust deed, and ensures compliance with legal obligations. Trustees have a duty to act in the best interests of unitholders, keep accurate records, and exercise care in managing trust assets. Using a corporate trustee is common, as it can help limit personal liability and simplify succession planning.

Non-geared unit trusts often operate as fixed unit trusts for tax purposes. This provides unitholders with defined entitlements to income and capital and can offer tax advantages, including the potential to carry forward losses. However, careful management and adherence to regulations are essential to preserve these benefits.

While non-geared unit trusts provide flexibility and tax advantages, there are considerations. Distributions are typically fixed, limiting discretionary income allocation, and asset protection may be more restricted compared to discretionary trusts. Trustees and unitholders must follow the trust deed and legal obligations to avoid unintended tax or compliance issues.

iCare Super can help SMSF investors set up non-geared unit trusts properly. Our team provides tailored advice on structure, compliance, and ongoing management to ensure your SMSF investment meets all regulatory requirements while maximising benefits.

For SMSF trustees seeking a compliant, efficient, and tax-effective investment vehicle, a non-geared unit trust is worth considering—and with iCare Super, you have expert guidance every step of the way.