Hybrid trusts

Categories

A hybrid trust is simply a trust that possesses the characteristics of more than one of the simple forms of trust in varying degree and combination – fixed, discretionary and unit trusts.

Advantages

The advantages of a hybrid trust are:

• • flexibility of control and distribution of capital and income;
• • negotiability - units can be redeemed and transferred;
• • CGT Event E4 may not apply;
• • CGT general 50% discount is accessible;
• • negative gearing may be available; and
• • asset protection advantages apply for non-fixed assets.

Disadvantages

The disadvantages of hybrid trusts are:

• • difficulty in accessing small business tax concessions;
• • complicates valuation and stamp duty issues;
• • interest on borrowings may not be deductible;
• • cannot access trust loss provisions that are available to fixed trusts; and
• • cannot make a family trust election if more than one family is involved.

Legal considerations to note to access concessions

• • small business net asset value test;
• • requirement for CGT concession stakeholder;
• • requirement for significant individual;
• • fixed trust tests to access right to deduct current and prior year losses; and
• • the test individual in relation to a family group.

See Hybrid trusts.