Australia: High Court clarifies what is a unit trust

The recent High Court decision in ElecNet (Aust) Pty Ltd v Commissioner of Taxation [2016] HCA 51 provides useful guidance as to what constitutes a unit trust under the Income Tax Assessment Act 1936 (Cth) (ITAA).

The Key Facts

  1. ElecNet (Aust) Pty Ltd (ElecNet) was the trustee of the Electrical Industry Severance Scheme (EISS).
  2. The EISS was created in 1997 by deed (Trust Deed).
  3. Employers in the electrical industry can join the EISS. Employers can make payments to ElecNet with respect to an employee. That payment is credited by ElecNet to the name of the employee. If that employee's employment is terminated, ElecNet makes a severance or redundancy payment to the employee.
  4. ElecNet sought a tax ruling that the EISS was a public trading trust. If EISS was a public trading trust, it would pay the lower corporate tax rate of 30% instead of the general rate applicable to trusts of 45%.
  5. The Commissioner ruled that the EISS is not a public trading trust.

The Courts

  1. ElecNet appealed the Commissioner's ruling and was successful at first instance in the Federal Court.
  2. The Commissioner succeeded on appeal to the Full Federal Court.

The High Court

  1. The issue before the High Court was whether EISS was a unit trust for the purpose of Division 6C of Part III the ITAA.
  2. Section 102M of the ITAA contains the following definitions:
    1. unit, in relation to a prescribed trust estate, includes a beneficial interest, however described, in any of the income or property of the trust estate.
    2. prescribed trust estatemeans a trust estate that is, or has been, a public trading trust in relation to any year of income;
  1. The expression "unit trust" is undefined in the ITAA.

The arguments

  1. ElecNet argued that:
    1. each dollar paid by an employer to ElecNet and credited in respect of an employee is a "unit" as defined (being an employee's beneficial interest
    2. in the EISS trust estate), and the EISS is a unit trust;
    3. what constitutes a "unit", as defined, should not constrained by pre-conceived assumptions of what the nature of a unit trust is; and
    4. the EISS belonged to an undefined category of "unit trust" which fell between a "discretionary trust" and a "fixed trust" under the ITAA.
      This is because the beneficiaries of the EISS had entitlements capable of being calculated numerically or proportionately ("units") which were contingent on a specified event occurring, but those entitlements could be defeated by an event, circumstance or authorised act of a trustee.
  1. The Commissioner argued that:
    1. the expression "unit trust" in Division 6C, and in common usage, refers to the recognised trust relationship developed, as an alternative to a company,
      as a structure for investors to group resources for investing or trading;
    2. many aspects of the EISS are not analogous to that of a unit trust including:
      1. the beneficial interest in the EISS is not divided into units (however a unit is described);
      2. the employees' rights and entitlements are dependent on ElecNet exercising its discretion and on matters
        peculiar to specific employees (such as amounts paid by employers to ElecNet on their behalf); and
      3. ElecNet could distribute trust funds other than by payment to an employee.

    The High Court's decision

    1. The High Court held that the EISS was not a unit trust for the purpose of Division 6C, and therefore not a public trading trust.
    2. There were several key findings behind the leading judgment.
      1. ElecNet can broadly determine at its discretion which employees would be paid under the EISS and the amount of the payment.
        This is indicative of the employees' not having a beneficial interest in any of the income or property of the EISS.
      2. The extent of an employee's entitlement is not measureable as a percentage of the EISS trust estate by reference to the terms of the Trust Deed.
        The entitlement depends on the contributions paid on behalf of that employee by the employer to ElecNet and the employee's other circumstances.
      3. The beneficial interest of each employee is not divided into units under the Trust Deed. There are no discrete parcels of rights which can be separately dealt with. The employees were not issued, and did not hold, units merely through the crediting of payments to their name by ElecNet.
      4. The inclusive definition of "unit" in section 102M of the ITAA does not expand the meaning of "unit trust" for the purpose of Division 6C.
      5. The context of Division 6C requires the expression "unit trust" to be given its common usage meaning. There is no precedent, anywhere in
        the world, for the term "unit trust" to apply in circumstances other than where under the applicable trust deed:
        1. the beneficial interest in the trust fund is divided into units; and
        2. the units when created or issued are held by persons for whom the trustee maintains and administers the estate.
      1. The legislative purpose behind Division 6C is to treat unit trusts in a similar way to companies for tax purposes. The relationship established by the Trust Deed between ElecNet and an employee is not analogous to the relationship between a shareholder and company:
        1. the entitlement of employees under the EISS is not divided into units in the way that a shareholder's entitlement in a company is divided into shares;
        2. a payment by an employer to ElecNet that is credited to an employee is not analogous to a person subscribing to the capital of a company and obtaining rights to a proportion of its profits in return; and
        3. ( a payment to an employee by ElecNet is not analogous to a dividend paid to a shareholder in a company, because the payment is at the discretion of ElecNet and the quantum of payment differs from employee to employee.


    The High Court decision helpfully identifies some of the key indicators of a unit trust. In establishing a trust, it is crucial to choose a structure and trust terms that suits the circumstances.

    The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions