Understanding Community Investments

How much do I need to either purchase with others to form a small community or buy into an existing community?

Note: Most communities are asking for a starting price of $60,00 to $450,000 as a Unit Share in the property, which in some offers does not include the building of your home. Some properties have accommodation ready to go through.

Trustee

The trustee is normally a shelf company, set up specifically to act for the unit trust. Unitholders appoint the trustee, and their powers are contained within the trust deed. The trustee legally owns the trust and may be held personally liable for any debts incurred as the trustee. This is an attractive structure because of a company’s perpetual existence. That is, managing the unit trust is not complicated by the trustee’s “death” or an inability to manage its own affairs.

Beneficiaries

The beneficiaries of a unit trust are usually referred to as “unitholders.” Unitholders have fixed rights to the trust’s income and capital.

More About Unit Trusts?

A unit trust is a popular structure for investments such as property developments and other business ventures. In a unit trust, a “settlor” contributes a nominal amount to the unit trust which is then held by the “trustee” for the benefit of the “unitholders” in defined units in compliance with the terms of the trust deed. The trust deed will generally allow for the subscription of further units in the trust.

A unit trust is a useful structure in circumstances where one or more of the unitholders intend to sell or transfer their units and exit the trust structure. This type of structure allows for the continuation of the unit trust even when a unitholder wishes to exit.

Any taxable income or capital gain from the trust flows through to the unitholders in the proportions of their units.

A unit trust is generally an appropriate arrangement for unrelated parties who intend to combine their resources for investment.

It is recommended to obtain legal and accounting advice before the establishment and during the administration of a unit trust to understand the complexities involved. Along with the trust deed, it is advisable to have a ‘unitholders agreement’ in place as it allows the unitholders to define their relationship with each other and the obligations between them.

If you need advice on establishing or administering a unit trust, please contact Cass Smith.

There are other options for those unable to buy into a community or community development in full.

See the list of other ways to get into a community.

Buy a share in full Rent-to-Buy Unit Share
Buy ½ and Rent-to-Buy Balance Invest Super into a Sustainable Development
Skills and Balance Invest to live on the property
Skills and Rent-to-Buy Balance Skills in Lure of Financial input
Not live on property – Invest to sell later Wish to buy more than 1 share to enable me to sell extra shares in future
Investing to live and build homes on the property Another Option you wish to discuss?

Land Trust

Holds land title/s, building, and fixed assets for the benefit of the Private Members Association

Private Members Association (PMA)

Deals with commerce activities for the benefit of founding members and members

Private Family Discretionary Trust

Holds beneficiary % for founding members to protect their interest in the land, buildings, fixed assets, and that which is generated through the activities of the PMA.

It also has the capability to be set up in a way that deals with estate and succession planning to assure your assets go to who you want, without the intervention of those energy vampires within the system.

Note:

Definition of Land Trust

Noun

  1. An agreement placing real estate into the care and control of one or more trustees, whether for conservation purposes or financial purposes.
  2. A legal agreement in which a trustee holds the title to real estate, but all rights related to ownership remain with the owner.

Fixed Unit Trusts

Fixed Trust Information – Website

A fixed trust is eligible for the land tax threshold.

A fixed trust is where the beneficiaries or unit holders are considered owners of the land as at the taxing date, because they’re entitled to the income and capital of the trust, and these entitlements can’t be varied by the trustee in any way.

A fixed trust includes some unit trusts and bare trusts. (Fixed trust has the meanings given by Section 3A (2) and Sections (3A) and (3B) of the Land Tax Management Act 1956.

To qualify as a fixed trust, the trust deed must satisfy the following:

  • the unit holders are presently entitled to all the income of the trust, after payment of the proper expenses incurred by the trustee in authorized administration of the trust
  • the unit holders are presently entitled to the capital of the trust and may require the trustee to wind up the trust and distribute the trust property or the net proceeds of the trust
  • the entitlements can’t be removed, restricted, or otherwise affected by the exercise of any discretion, or by a failure to exercise any discretion, conferred on a person by the trust deed
  • for unit trusts, only one class of units can be issued, and the proportion of trust capital a unit holder is entitled to on winding up or surrender of units must be fixed and must be the same as the proportion of the income of the trust to which the unit holder is entitled.

Restructuring a unit trust

A unit trust that doesn’t meet the relevant criteria and is a special trust, can restructure its trust deed so it’s considered a fixed trust for future tax years.

To make sure amended deeds meet the requirements, visit our secure online portal and upload:

  • a draft copy of the amended trust deed
  • a full copy of the original trust deed, if you haven’t already given it to us.

Before you amend a trust deed, we recommend you seek professional financial and legal advice.

Learn more about amending a unit trust deed in the Commissioner’s practice note: Unit trust deed amendments.

Liability of unit holders in a fixed trust

If a trust satisfies the relevant criteria, the beneficiaries of the trust are taken to be owners of an equitable estate in the land and are liable for land tax, as if they were legal owners of the land. They are treated as secondary taxpayers as per Section 25 of the Land Tax Management Act 1956.

Therefore, a unit holder’s interest in the unit trust, which owns another taxable land, or is a special trust, is assessed on the combined value of their interest in the land held in the trust, and any other taxable land owned. They may be entitled to a secondary deduction to prevent double taxation.

All fixed unit trusts must provide details of the unit holders.

Assessing a trust

A unit trust may be a special trust, a fixed trust, or a family unit trust.

To be a fixed trust, certain criteria apply. If they don’t apply, the trustee can restructure the trust deed to meet the criteria, but the threshold will only apply from the next tax year.

Unit trusts must meet the criteria outlined in section 3A(3B) of the Land Tax Management Act 1956 to be considered fixed trusts.

A trustee must lodge a land tax return if the land is subject to a trust. A copy of the trust deed should be lodged with the return.

If a beneficiary or a unit holder owns other taxable lands or is a special trust, they’re assessed on the combined value of their interest in the land held in the trust and any other taxable land owned. They may be entitled to a secondary deduction to prevent double taxation.

Bare trusts

A bare trust is a type of fixed trust, where the trustee and defined beneficiaries have complete control of the trust.

Given their structure, the land tax implications of bare trusts vary.

Then there is the Private Financial Structure