Non-Geared Unit Trusts

The rules concerning investments with related parties have changed many times in recent years. Those concerning related unit trusts are perhaps the most complex and errors can result in the application of the in-house asset rule. A valid exception to the in-house asset rule is the investment in a non-geared unit trust. This becomes an acceptable investment by the super fund but the conditions involved are very strict, providing that the unit trust:

  1. Never borrows;
  2. Does not have a charge over any asset of the unit trust;
  3. Does not make loans to any individual or entity;
  4. Does not acquire assets from fund members or a related party (except for business real property);
  5. Does not lease anything to a member or related party, except business real property;
  6. Does not conduct any kind of business; and
  7. Does not make any investments (such as buying shares or investment in trusts.

Accordingly, the only allowable investment by the unit trust is a commercial property. Other than that investment, bank deposits are the only other allowable investment.

Any breach of the above conditions will make the super fund’s investment in the unit trust an in-house asset, meaning that the investment will need to be sold very quickly to avoid non-compliance.

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