Transferring units in a unit trust and the step-by-step process

Selling units in a unit trust is a step most business owners take at least once: a founder cashing out part of their stake, a family member leaving the business, or a new investor buying in. Units are not shares in a company, but they are property, and the transfer of that property is governed less by what the seller and buyer agree between themselves than by the trust deed and the records that sit behind the trust.

When the process is done properly, you end up with something you can rely on: the incoming unitholder's name recorded in the unit trust register, unit and share certificates issued, the corporate trustee's own records and its ASIC filings consistent with the change, and a transfer the trustee cannot later refuse to recognise. What you do not get is a transfer by handshake or email. A unit transfer takes effect only when it has followed the process in the trust deed and the trustee has registered the new unitholder. Do it informally and the outgoing unitholder can stay on the register, still receiving distributions and still counted for tax purposes, long after the money has changed hands.

Before you start: the prerequisites

Get these together before you give anyone notice of an intention to transfer:

• The current trust deed: The transfer clause in the deed is the rulebook for the whole process. If the deed has been amended since the trust was set up, use the latest version. An outdated copy is one of the most common reasons transfers go wrong.
• The trustee's identity: Confirm whether the trustee is an individual or a company, and if it is a company, have its constitution on hand.
• Any unitholders' or shareholders' agreement: If the unitholders have agreed to a separate deed or shareholders' agreement, it will typically override the trust deed where the two conflict.
• The incoming unitholder's details: Full name, address and any consents or approvals the deed requires before the transfer can be registered.
• A tax read on the deal: Capital gains tax, stamp duty or landholder duty, and land tax can all change the economics of the transfer. Confirm the position before you agree a price.
• A decision on the shares: Where the trustee is a company, decide whether the shares in that company will transfer alongside the units, and at what price.

The transfer process, step by step

Review the transfer clause in the trust deed

The trust deed sets out who can transfer units, to whom, and on what terms. Common requirements include written notice to the trustee, the trustee's consent, a right of first refusal for existing unitholders, and a mechanism for valuing the units where the parties cannot agree. Because these are contractual requirements rather than statutory ones, each deed differs. What one deed requires will not be in the next, so the first step is always to read the actual clause rather than assume the standard position.

The most common feature to check for is pre-emptive rights. Under a typical pre-emptive rights clause, a unitholder who wants to sell must first offer the units to the existing unitholders in proportion to their current holdings, and only if they decline can the units be offered to an outsider. Skipping this step is the fastest way to make a transfer contentious, because it hands the existing unitholders, and the trustee, a reason to refuse to register the new owner.

Check the corporate trustee's own rules

If the trustee is a company, there are two sets of rules to satisfy: the trust deed, and the company's internal governance. Under s 134 of the Corporations Act 2001 (Cth), a company's internal management is governed by its constitution, the replaceable rules in the Act, or a combination of both. If the corporate trustee has no constitution, the replaceable rules fill the gap.

Where the units sit inside a corporate trustee structure, it is best practice to transfer the corresponding shares in the trustee company at the same time. The reason is control: a unitholder who holds 25 of 100 units should also hold 25% of the shares in the trustee company, so their voting power over the decisions the trustee makes about the trust matches their economic interest. If the units move without the shares, the seller keeps control of the trustee while the buyer carries the economic interest, which is usually not what either party intends. The share transfer must also comply with s 1071B of the Corporations Act 2001 (Cth), which requires a company to register a transfer of securities only when a proper instrument of transfer has been delivered to it. The shares often change hands for nominal consideration because they may carry little value of their own, while the units themselves are generally sold at market value.

Settle the tax position before agreeing a price

Units in a unit trust are CGT assets, and selling them is a disposal that triggers CGT event A1 under the Income Tax Assessment Act 1997 (Cth). The Australian Taxation Office treats the event as happening when the disposal contract is entered into, or when ownership changes if there is no contract, which means the tax position is fixed at signing, not settlement. If the seller has held the units for at least 12 months, they may be entitled to the capital gains discount: under Division 115 of the Income Tax Assessment Act 1997 (Cth), individuals and trusts can generally reduce a discount capital gain by 50%, while companies receive no discount. The discount percentage has been amended over time, so confirm the rate that applies on the date of your disposal.

Stamp duty is a state and territory matter, and it depends on where the trust's assets sit. In NSW, for example, acquiring a significant interest in a unit trust scheme with landholdings over $2 million attracts landholder duty calculated at the same rate as transfer duty on the unencumbered value of the landholdings. Other states and territories run their own regimes with different thresholds and rules. If the trust holds land, the transfer can also have land tax consequences for the incoming unitholder, which vary by state and territory and depend on what the land is and who holds it. These are questions to answer before the price is agreed, because a tax bill can easily turn a negotiated price into a loss for one side.

Give written notice of the transfer

Once the mechanics and the tax position are understood, the seller gives written notice of the proposed transfer to the trustee. The deed usually prescribes what the notice must contain: the number of units, the proposed transferee, and the price. If the deed or a unitholders' agreement requires it, the notice also goes to the other unitholders and the pre-emptive rights process runs: existing unitholders decide whether to buy their proportion, and the seller waits out the notice period before dealing with anyone else.

Prepare and sign the transfer documents

The paperwork for a unit transfer is usually thin, at least on its face. A unit transfer form records the transferor, the transferee, the number of units and the consideration, and is signed by both parties. Where the corporate trustee's shares are moving as well, a share transfer form accompanies it.

If the buyer is not an existing unitholder, a unit and share sale agreement is commonly used. This is the document that carries the substance of the deal: the price, the conditions, and the seller's representations and warranties about the trust, the business it operates and the assets it holds. If a representation turns out to be untrue, the buyer can claim compensation. A sale agreement is not legally required, but buying units without one leaves the incoming unitholder relying on whatever was said informally, which is a weak position if the trust's affairs turn out to be less healthy than represented.

Have the trustee register the transfer and update the records

A transfer of units is completed by registration, not by signing. Once the transfer documents are in order and any consents are given, the trustee records the incoming unitholder in the unit trust register and issues a unit certificate. Where a corporate trustee is involved, the company updates its share register, issues a share certificate, and registers the transfer of shares in its own records.

The corporate trustee's ASIC records then need to be checked. If the transfer means a director or secretary of the trustee company is appointed or ceases to hold office, s 205B of the Corporations Act 2001 (Cth) requires the company to lodge notice with ASIC within 28 days in the prescribed form, and ASIC's guidance confirms that a company must notify it within 28 days when an officeholder is appointed, resigns or retires. The change is lodged on Form 484 (Change to company details), and a director or secretary who resigns can also notify ASIC personally on Form 370. The 28-day clock is a common place for transfers to slip, because it runs from the date the officeholder actually changes, not from whenever the company gets around to the paperwork.

Resign if you are leaving altogether

If the seller is transferring all of their units and all of their shares in the corporate trustee, they usually resign from any roles they hold in the trustee company at the same time. That means a letter of resignation to the company and the same 28-day ASIC notification, so the departing unitholder is not left on the record as a director with ongoing duties to a company they no longer have any interest in.

Where transfers get held up

Most transfers get held up at one of these four points:

• Pre-emptive rights ignored: Selling to an outsider without first offering the units to existing unitholders gives the trustee grounds to refuse registration and makes the transfer contestable.
• The wrong version of the deed: Transfers are checked against the deed as amended, not the original document. Amendments made years ago are easy to miss.
• The 28-day ASIC clock: Director changes notified late breach s 205B of the Corporations Act 2001 (Cth) and attract penalties, so diarise the date the officeholder actually changes, not the date the paperwork is signed.
• Stamp duty surprises: A transfer that looks simple on paper can attract landholder duty when the trust holds land above the relevant threshold, so check the duty position in the state where the trust's assets are located before the parties commit.

Where a lawyer earns their fee

A lawyer's role in a unit transfer is mostly checking before signing and lodging after. Before the transfer, a lawyer reviews the trust deed and any amendments, confirms what the pre-emptive rights and consent requirements actually say, and works through the tax position with your accountant: whether the seller qualifies for the capital gains discount, whether the transfer attracts stamp duty or landholder duty in the relevant state, and whether the trust's land holdings create land tax issues for the incoming unitholder.

On the documents, a lawyer drafts the transfer notice, the unit and share transfer forms, and the unit and share sale agreement, including the representations and warranties that protect the buyer. Where a corporate trustee is involved, the lawyer coordinates the share transfer and any resignations so that control and economic interest move together, and sequences the ASIC lodgements so the 28-day deadlines are met rather than discovered after the fact.

The deed is the process

The single thing most likely to determine whether a unit transfer succeeds is whether it follows the trust deed. The deed sets the notice, the pre-emptive rights, the consents and the registration step, and a transfer that ignores any of them can leave the seller on the register, the buyer without enforceable rights, and both parties in a dispute over who actually owns the units. The paperwork, the tax advice and the ASIC lodgements all matter, but they are secondary to the deed's own requirements.

If you are transferring units, start with the deed as amended, confirm the corporate trustee's position and the tax consequences before a price is agreed, and treat registration as the moment the transfer is done. Where a corporate trustee is involved, move the shares with the units, and keep the 28-day ASIC clock for any director changes. A lawyer can check the deed, draft the sale agreement and sequence the lodgements, which is usually cheaper than unwinding a transfer that was done informally.