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How to Set Up a Unit Trust

How to Set Up a Unit Trust

by Norman Elliot, Deloitte Touche Tohmatsu

Released April 2006

What is a Unit Trust?

A unit trust is but one of a number of various types of “Trust” which exist. Therefore, in order to begin any discussion of Unit Trusts it is important to understand what a Trust is.

A Trust consists of the following 3 key elements:

  • Property (which may include money);

  • A Trustee who has the legal title to the property and an obligation to hold the property for the benefit of another person (referred to as the beneficiary); and

  • A beneficiary (or a number of beneficiaries) who has an equitable or beneficial interest in the property.

In most cases a Trust will be established and governed by a Trust Deed which will set out the rights and the obligations of the Trustee, the entitlements of the beneficiaries and various other matters. Trust Deeds are legal documents which can range from a few pages to hundreds of pages which are broad enough to deal with a myriad of different possibilities.

What makes a unit trust different to other trusts (for example, a discretionary family trust) is that the entitlement of a beneficiary in the trust is represented by the number of units that each beneficiary holds. In this way a unit in a unit trust is similar to a share in a company but it must be noted that there are significant differences between units and shares both from a legal and a taxation perspective.

Trusts are established and used for a variety of reasons and purposes which range from family maintenance and personal reasons right through to Public Trusts (such as managed investments and listed property trusts) which may have thousands of unitholders and billions of dollars worth of assets.

When to use a unit trust

A Unit Trust can be used for a variety of purposes, including but not limited to:

  • Property investments;

  • Other passive investments such as the ownership of shares; or

  • Trading activities.

A Unit Trust is often used when:

  • There is more than one investor involved;

  • The assets being acquired are eligible for the various Capital Gains Tax concessions; or

  • It is envisaged that further equity in the business may be required at a later point in time.

As highlighted above, a key advantage of a Unit Trust is the ability to access most (if not all) of the various Capital Gains Tax concessions, including the small business concessions. This is one of the main advantages of a Unit Trust over a company but it must be noted that some of the concessions (for example, the small business 50% active asset concessions) are reversed once the capital gain is distributed to the beneficiaries.

As in the case of all structuring issues a detailed consideration of the parties aims and future plans must be considered before making a decision to establish one structure over another.

Settling the trust: choice of settlor and trustee

Unlike discretionary trusts, most Unit Trusts are established by the unitholders subscribing for initial units in the Unit Trust. The number and amount of units subscribed for initially may be small in both number and value and these are often referred to as foundation units.

The Unit Trust Deed will also provide for additional units to be subscribed for and potentially for different classes of units to be issued by the Trustee with varying rights attaching to them. However, for the purposes of this paper we will focus predominantly on Unit Trusts with only one class of units, being ordinary units, which entitle the holder to a proportionate interest in the income and capital of the Unit Trust.

In many ways a Unit Trust may operate in a similar way to a company where shareholders subscribe for shares and additional shares can be subsequently issued at a later point in time. Whilst there are similarities there are also a considerable number of differences in both the legal and taxation treatment of these entities.

The choice of a Trustee will be determined by a variety of factors such as the:

  • Number of unitholders;

  • Investments to be undertaken;

  • Expected changes in the unitholding of the Unit Trust; and

  • Risks involved.

A Trustee may be an individual or a company and in some cases there will be more than one trustee. Each situation should be considered and the appropriate Trustee appointed.

An individual (or more than one individual) may be chosen and is usually the least expensive as it does not involve the establishment of a company with its associated formation and ongoing costs. This may be an option where there are a small number of unitholders (for eg. 2-3 in which case each may be a trustee) and the investments are passive (eg. property or shares).

On the other hand, a Unit Trust which has a large number of unitholders or is expected to carry on a trading business should be established with a company as the Trustee.  A Trustee will generally be entitled to be indemnified out of the trust fund from losses incurred in its capacity as Trustee. However, if the losses exceed the trust fund then the Trustee may be personally liable for the shortfall in which case a corporate trustee may provide further protection.

It is recommended that the Trustee of a trust should be a company unless all of the risks have been adequately considered and the client advised accordingly. It is also preferable that a newly incorporated company will be used that has no previous trading history.

Directors and shareholders of trustee company

The shareholders of the trustee company should generally be the unitholders of the Unit Trust. Where the trustee company has no other assets than the assets of the Unit Trust then this should generally be a straightforward process of issuing new shares in the trustee company to unitholders for in the same proportion to their unitholding in the Unit Trust.

In a standard Unit Trust the terms of the Trust Deed should provide certainty as to distributions (ie. proportionate to the unitholding in the Unit Trust) though there will be some discretions as to the investments and other decisions to be made by the Trustee.

Where there are a small number of unitholders then it should be possible for each to be a director of the trustee company to ensure they are kept fully informed of all decisions being made. If not, then consideration should be given to not only who is a director but also how the decisions of the Trustee company can be made and whether there should be limitations on the exercise of powers to protect all unitholders, in particular small unitholders.

Advisors should always be conscious of considering all the circumstances and providing appropriate advice only after these have been considered. An important consideration for any Unit Trust is the setting up of a Unitholders Agreement which all the unitholders will be a party to. This will further detail the rights and responsibilities of the unitholders and it should also ensure that if things do not work out that the parties are adequately informed of how the parties will act.

Control of the trust

Control, in the case of a Unit Trust, can be held by a variety of parties depending on the circumstances involved and the decision which is being made.

In the running of the Unit Trust the Trustee will have the day-to-day control for decisions and for carrying on the activities or business of the Trust. The trust deed may constrain the Trustee in certain circumstances from exercising its powers and in establishing a Unit Trust specific restrictions should be considered. For example, the trust deed may prevent the Trustee from disposing of the assets of the Unit Trust worth >$20,000 without the approval a majority of the unitholders.

Unlike a discretionary trust, a trustee of a Unit Trust will not have as considerable a discretion to determine distributions of income and capital and these will generally be prescribed in the deed. As a result, the Trustee will not exercise as much control over a Unit Trust as it does in the case of a discretionary trust.

Clearly the unitholders (acting alone or as a majority) may have the ability to remove the Trustee and such power will generally be contained in the trust deed. Where the unitholders can remove the Trustee then they will exercise influence and power over the Trustee which may be used to determine the actions of the Trustee, including the removal of the current Trustee and the appointment of a new Trustee.

As a result, the control of the Unit Trust will depend on the terms of the trust deed and also the unitholders themselves although ultimately the power rests with the unitholders where they have the power to remove the Trustee.

Fixed trust or non-fixed trust?

The concept of a fixed trust or a non-fixed trust is an important one under various provisions of the Tax Act. In particular it determines the potential application of certain tests contained in the trust loss provisions and will also impact on:

  • Related matters concerning family trust elections;

  • The ability of the Unit Trust to pass on imputation credits to its unitholders when it receives a franked dividend; and

  • The application of the company loss provisions where the Unit Trust owns shares in a company with tax losses.

In many cases people mistakenly assume that a unit trust is a fixed trust and this can have considerable adverse consequences for the both the trust and other related entities.

A Unit Trust will not always be a fixed trust and the terms of the trust will be vital in determining whether it can satisfy the definition of a fixed trust. If it is not a fixed trust then the Unit Trust will be a non-fixed trust and therefore the tests applying to it will be considerably harder to satisfy. Without going into great detail of the tests for fixed and non-fixed trusts the following questions should be answered in relation to the trust deed:

  • Can the Trustee redeem units and if so can the redemption be undertaken for less than the market value of the units?

  • Are there any discretions given to the Trustee in respect of making distributions to unitholders (for eg. are there discretionary units on issue?)?

  • How is accumulated income treated? Is the accumulated income held for the benefit of the existing unitholders or if the unitholder ceases to be a unitholder does their entitlement to the accumulated income cease?

It is not possible to simply conclude that a Unit Trust is a fixed trust and this point cannot be overstated.

Unit holders, classes of units and rights

The unitholders of a Unit Trust will be those which have subscribed for units in the Unit Trust and are entered into the register of unitholders. Again, most Unit Trusts will operate in a similar way to a company with unitholders have a certificate to evidence their unitholding and their entitlements under the trust deed.

As in the case of companies, there are various classes of units which can be issued and rights which pertain to these. These may include (but are not limited to):

  • Discretionary units – which entitle the holder to an entitlement to the income and/or the capital of the Unit Trust. The Trustee may determine to exercise a discretion to make a distribution to such a unitholder in a similar way to a discretionary trust. These units may also be called Special Units and a Unit Trust with discretionary units may also be referred to as a Hybrid Trust in that it is partly a discretionary trust and a Unit Trust;

  • Income units – certain units may only be entitled to receive distributions out of the income of the Unit Trust and are not entitled to receive distributions of capital. In some cases these may contain a fixed rate of return (for eg. 8% p.a);

  • Capital units – as in the case of income units but only receive distributions out of the capital of the Unit Trust; and

  • Other – the type of units can be very broad and contain various components of all of the above. The trust deed will prescribe the type of units which can be issued but in many cases this will be of any type at the discretion of the Trustee.

As can be seen from the above, the type of units which can be issued is extremely broad and will be covered by the terms of the trust deed. This provides flexibility in respect of structuring a Unit Trust but for the purposes of the remainder of this paper we will focus solely on a Unit Trust with ordinary units which entitle the holder to a proportionate interest in the income and capital of the Unit Trust.

The income clause

There is a considerable amount of case law, Australian Tax Office rulings, journal articles and commentary regarding the income of a trust and the application of the tax law. The term “income” can have different meanings and include varying amounts depending on whether you are referring to trust income, accounting income or net income. Therefore, in considering the wording of the income clause of a trust deed it is necessary to understand the following matters.

Trust income

The concept of trust income is a very important one and has a long history. A detailed discussion of it is beyond the scope of this paper but the comments below should assist the reader in understanding why this may differ from accounting income and net income.

For trust law purposes there is a clear distinction between income and capital and one of the main reasons for this is that trusts, especially those created by will, will include one beneficiary who is entitled to a life interest in an asset (for eg. the right the income from the asset until they die) and another person (referred to as the remainderman) will have the reversionary interest in the asset. On the death of the beneficiary with the life interest the asset will pass to the remainderman who will be free to dispose of the asset.

Complicating factors may arise where the assets are disposed of, expenses are incurred in relation to assets (for eg. repairs) or other transactions occur in relation to the assets and a number of cases have been heard in order to determine which of the beneficiaries is entitled to the proceeds from sale or the proceeds of other transactions. These cases have been pivotal in determining the meaning of ordinary income under the Tax Act but as we will see the concept of net income may differ significantly to trust income.

Accounting income

Accounting income will be the income of the trust according to accounting principles. As in the case of trust income there will be a number of complicating matters in relation to determining the accounting income of the trust and this is likely to differ from both trust income and net income for tax purposes.

The accounting income may also vary depending on the size of the trust and whether it is required to comply with any particular accounting standards.

Net income

At the outset it is worth noting that the phrase net income is often used in a trust deed though not when referring to net income for tax purposes. It is often used to refer to the income of the trust remaining after taking into account deductions against that income. At all times the definitions and interpretations sections of the trust deed should be considered.

Net income is a tax law concept and is defined in subsection 95(1) of Income Tax Assessment Act 1936 as:

“………the total assessable income of the trust estate calculated under this Act as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions…………..”

Net income therefore is a similar concept to taxable income under the Tax Act and in order to understand this concept it is worth noting the following points:

  • Assessable income will include amounts which are capital in nature, the best example to illustrate this is capital gains which are included in the definition of assessable income but are not income according to the general understanding of that term;

  • Assessable income will include amounts such as the imputation credits attached to a franked dividend even though these are clearly not income for trust or accounting purposes;

  • Allowable deductions will not include amounts which are of a private or domestic nature or that are specifically excluded from being deductible under the Tax Act; and

  • Allowable deductions will include certain amounts which may not be deductible for accounting or trust law purposes such as building allowances under Division 43 of ITAA 1997.

As a result there is likely to be differences between trust income, accounting income and net income in relation to even the most straightforward of trusts. This can result in a variety of tax implications which should be considered and are beyond the scope of this paper.

Defining income for the purposes of the trust deed

Therefore, it is important when establishing a trust deed to give due consideration to the definition of income and what is intended by the parties. There is a divergence of views as to whether the trust deed should define income to be net income for tax purposes, accounting income or trust income and this is an issue on which the author does not provide a concluded view.

For convenience it may be preferable to have income defined as accounting income such that it is consistent with the accounts prepared by the trust though it should be noted that the differences between income and net income should be considered and appropriate steps taken before the trust is settled to alleviate these.

Finally, any income clause should be drafted to ensure that the Trustee has the power to:

  • Determine whether an amount is income or capital for the purposes of the trust deed; and

  • Where appropriate, to enable the Trustee to stream various classes of income to a beneficiary. (This may not be necessary in a standard private unit trust where beneficiaries have similar characteristics and tax attributes.

Redemption and capital returns

A Unit Trust deed will generally include clauses which deal with the redemption of units and, in particular, the price at which such a redemption will take place. A redemption of units may be undertaken for a variety of reasons including the realization of part of the assets of the Unit Trust or to return capital of the trust which is excess to its requirements.

As discussed below, a redemption may also be required to enable a unitholder to exit its unitholding without needing to find a purchaser and will also prevent a new unitholder being introduced which the existing unitholders do not agree to.

The redemption price should be clearly set out in the trust deed and will take into account the fair value of the units being redeemed. This should include consideration of the type of unit, the conditions attaching to it and any other relevant circumstances. Some trust deeds may enable the Trustee to redeem units at a price it determines without reference to the fair value of the units. Such a trust is likely to give rise to adverse consequences under the trust loss rules and also for the unitholder under the CGT provisions.

Vesting day

Trusts are required to have a vesting date (with some limited exceptions) to ensure that they do not infringe the rule against perpetuities.  The rule against perpetuities is designed to prevent property being tied up for considerable periods of time and without it a person could place property on trust almost indefinitely.

The vesting date refers to the date on which the Trust will come to an end and any remaining property of the Trust is then distributed to the beneficiaries in accordance with the terms of the Trust Deed.

In Victoria the vesting date must be no later than 80 years from the day on which the Trust was settled and all other Australian jurisdictions have this requirement (or a similar requirement).

The vesting date puts an upper limit on the lifetime of a Trust but it is possible for a Trust to be established with a shorter lifetime and this is often the case when a Trust is used solely for a specific purpose.

In addition, most Trust Deeds provide for the vesting date to be brought forward such that the property may be distributed to the beneficiaries prior to the original vesting date. It is recommended that a Unit Trust should always have such a clause to enable the trust to be vested at a time that the unitholders agree and such clauses generally require a unanimous vote of the unitholders.

Issue and disposal of units

The issue of additional units will be covered in the trust deed and may contain restrictions on the types of units and the requirements to be satisfied prior to new units being issued. The trust deed may also contain restrictions on to whom a unitholder may dispose of their units to and any disposal which are not in accordance with this will not be registered by the Trustee.

For example, many private Unit Trusts will contain a procedure which each unitholder must follow in order to dispose of their units which contain some or all of the following:

  • The trustee must be notified and may choose to redeem the units at a price to be determined. This may be determined by a formula under the trust deed which takes into account the net asset position of the Unit Trust;

  • The existing unitholders may be called upon by the Trustee to subscribe for further units in the Unit Trust (in proportion to their existing unitholding) in order to enable the Trustee to redeem the units;

  • The existing unitholders may acquire the units (in proportion to their existing unitholding) at the price determined;

  • The Trustee may be empowered to borrow funds or to issue a special class of units to enable the redemption of the units; or

  • Failing all of the above, the sale may be approved and registered

A key difference between the issue and disposal of units are that the former will not (of itself) give rise to a taxing point for the purchaser or the other units if it is undertaken at arm’s length. This is another example of the similarity between a Unit Trust and a company.

The disposal of units will give rise to a taxing point, whether as income or a capital gain.

Definitions and interpretations

In most modern trust deeds there will be a considerable amount of time spent on defining terms used throughout the trust deed and also in assisting the interpretation of the wording used. This is a considerable advance on the older style trust deeds which use extremely legalistic and old fashioned wording which at times makes it very time consuming and difficult for an advisor to interpret.

We have already discussed the main definitions and clauses above, including the definition of “income” for the purposes of the trust deed, and these should be reviewed and considered in detail prior to the deed being settled.

Other clauses

There are a variety of other clauses which are used in trust deeds and these are discussed briefly below:

  • Recitals – these are contained at the start of the trust deed and set out the purposes and/or the facts which have given rise to the establishment of the trust;

  • Declaration of trust – also contained at the start of the deed and will include a statement that the Trustee holds the Trust Fund on trust and in accordance with the terms of the deed;

  • Trustee clauses – the deed will often include clauses which set out the removal, appointment, restrictions on dealings, clauses which protect or indemnify the Trustee and other relevant matters;

  • Powers or limitations – such as to carry on a business, to borrow money, to acquire certain assets etc.

State duty on settlement

Each state in Australia imposes stamp duty and this extends to include a duty payable on the settlement of a trust. As the states vary from one to the other it is important to consider the relevant state in which the trust is settled and also the assets of the trust and the Trustee.

The amount of duty varies from state to state and in Victoria stamp duty is imposed on a settlement of trust at ad valorem rates where the trust is declared over dutiable property or $200 where it is over non-dutiable property.

It is important to also consider stamp duty in respect of the issue, redemption or transfer of units, especially in the case of unit trusts which hold an interest in land, as each state has rules for dealing with land rich entities such as trusts. In addition, marketable securities duty also can apply in all states (except Tasmania , Victoria and Western Australia ) to the transfer of units in a unit trust.

Setting up a

Private Unit Trust

Case Studies (with solutions)

Case Study 1

Arnold and Bill are looking to establish a new wine retailing business specialising in the sale of “cleanskin” wines at discounted prices to be called VineStore. There is a lot of competition in this marketplace but Arnold and Bill each bring experience which can greatly assist the business but it is not free from risk.

Arnold and Bill have other investments (mainly shares and property) which they own in their own name and if the business is successful they will look to expand the number of retail outlets they own.

Funding for the expansion is expected to come from borrowings but they will also be looking for additional investors and have a number of people who would be interested in taking a minor stake (between 5-10%) in the business.

They are intending to establish the VineStore Unit Trust and seek your advice on the mechanics of establishing it and resolving some of the key issues in relation thereto.

What type of trustee should Arnold and Bill use for the VineStore Unit Trust? Why should they use that type of trustee?  

The preferred option for a trustee should always be a company unless there is no risk involved in the operations of the Trust.

A company will provide additional protection in the event of the business conducted by the VineStore Unit Trust being unsuccessful. A company will also have the added advantage of not requiring a disposal of assets from one trustee(s) to another on the change of trustees.

If the business is successful, how could new investors be admitted to the VineStore Unit Trust?

There are a number of ways new investors could be admitted. These include:

  • The disposal by Arnold or Bill of a part of their unitholding;

  • The issue of new units in the VineStore Unit Trust; and

  • A loan to the VineStore Unit Trust which contains a right to a fixed return and a return contingent on the profitability of the VineStore Unit Trust.

What would be the preferable method for admitting new investors? 

The preferable method would be to issue new units in the VineStore Unit Trust as this should not give rise to a tax liability for the trust, the existing unitholders and the new unitholders. The issue of new units would be by way of subscription for new units which would provide an injection of the required funds for the business expansion.

The issue of new units would dilute the unitholding of Arnold and Bill in the same way as a sale of their existing units but they would not be subject to any capital gains tax liability.

Case Study 2

Jane and Milly have been lifetime friends and have decided to establish a business together to be owned 50:50 The business will make and sell specialty cakes for weddings, birthdays and functions.

Jane has previously conducted a business using the Madeira Unit Trust which she holds all the units in (100 in total). The Madeira Unit Trust previously operated a cleaning business which closed down when Jane had her first child. The Madeira Unit Trust has a corporate Trustee called JN Pty Ltd which Jane owns all the shares in. JN Pty Ltd previously was a family investment company used by Jane and her husband but which now has no assets in its won right.

To save money, Jane and Milly decide to use the Madeira Unit Trust (with JN Pty Ltd as trustee) rather than establish a new trust and company. The Madeira Unit Trust issues 100 new units to Milly to ensure a 50:50 unitholding.

The business has been running for about 6 months and Milly has come to you for advice on her personal tax affairs and explains what has happened and the structure they have used.

What concerns do you have with the structure that has been used?

The main concern for Milly relates to the fact that whilst she owns 50% of the units in Madeira Unit Trust she does not legally have control over the day-to-day operations of the business as JN Pty Ltd is wholly owned by Jane. Whilst the two are lifetime friends and have been working well together this situation should be addressed and remedied.

In addition, the use of both a Unit Trust and also a company which have previously been used can give rise to possible risks, such as claims by former creditors including the ATO for unpaid taxes. Using a clean structure would have been the preferred option with a new company incorporated.

What steps do you recommend that Milly should take to rectify these concerns?

In order to rectify the issue of control, Milly should seek to have the following done:

  • A new trustee company incorporated to replace JN Pty Ltd;

  • JN Pty Ltd to issue new shares in itself to Milly to ensure that she has a 50% shareholding; or

  • A unitholders agreement be entered into which would outline the way in which the unitholders will operate and, in particular, that Jane will not use her control of JN Pty Ltd to run the business without consulting with Milly on all matters.

The trust deed should provide a process for replacing JN Pty Ltd as the trustee.

The previous use of Madeira Unit Trust could be rectified (in part) by the establishment of a new trust which would acquire the business from Madeira Unit Trust.

The previous use of JN Pty Ltd could be rectified by replacing JN Pty Ltd with a new company which would be owned 50:50 by Jane and Milly. JN Pty Ltd would need to dispose of the trust assets to the new company.

What likely tax imposts could be encountered (if any) in rectifying the structure?

The establishment of a new trustee company to replace JN Pty Ltd should not give rise to any adverse tax liability. The disposal of the assets of the business from JN Pty Ltd would not be a CGT event and there should be stamp duty relief available for the change of trustee.

The issue of new shares in JN Pty Ltd to Milly to ensure that she has a 50% shareholding should not give rise to any tax consequences for JN Pty Ltd, Jane or Milly.

A unitholders agreement should not give rise to any tax imposts.

The disposal of the assets from Madiera Unit Trust to a new trust is likely to give rise to a tax liability as the business has been trading profitably and there is no roll-over relief for such a disposal.

Setting up a

Private Unit Trust

Class Exercises (with solutions)

Exercise 1

FBC Unit Trust has just finished its activities for the 2005 income year. Its income and expenses are as follows:

Rent received                                    4,000

Interest                                                200

Fully franked dividend                           700

Repairs                                               100

Depreciation                                         350

Parking fine                                           50

Other information

  • Assume that accounting and tax depreciation are the same.

  • The FBC Unit Trust Deed provides that the income of the trust is calculated in accordance with accounting principles.

  • The net capital gain is not eligible for the 50% CGT discount.

1.    Calculate the income of the FBC Unit Trust according to the trust deed.

The income of the FBC Unit Trust will be its accounting income as per the trust deed. This will be $4,400.

It is the sum of the rent, interest and dividend less the deductions for repairs, depreciation and parking fine.

2.    Calculate the net income of the FBC Unit Trust for tax purposes.

The net income is calculated in accordance with the Tax Act, specifically ss95(1) of Income Tax Assessment Act 1936. This will be $4,750.

The difference of $350 between the two amounts is caused by the fact that:

The dividend will need to be grossed up to take account of the franking credit (ie. $700 x (30/70) = $300).

The parking fine will not be deductible for tax purposes.

Exercise 2

Malcolm and Allen have come to you for advice on establishing a Unit Trust as a friend has recommended a Unit Trust structure over a company.

They are looking to establish a structure to hold their property investments and they will take a long term view of these investments.

What are some of the similarities of a company and unit trust?

Both a company and a trust can issue new units/shares without giving rise to tax implications for the entity and the unit/shareholder.

Each entity will maintain a unit/share register and issue a document to evidence the entitlement of the unit/shareholder in the entity.

Each entity will be able to redeem the units/shares issued in it.

The units/shares will be able to be sold or disposed of to another person or entity.

The units/shares should have an entitlement to an equal share in the profits of the entity proportionate to their number. This is subject to any special units or other rights which may be on issue.

What are some of the key differences?

A company is a separate legal entity which has the power to enter into contracts and transact on its own account. A trust on the other hand is a relationship between the trustee and beneficiaries and is not a separate legal entity. The trustee, in its capacity as the trustee of the trust, will acquire the assets and hold these for the benefit of the beneficiaries.

A trust will be eligible for the 50% CGT discount whereas a company will not be. (Note that in some circumstances the benefit of the 50% CGT discount will be reversed for a trust).

Should Malcolm and Allen use a Unit Trust over a company structure?

Yes. Based on the fact that they are looking to hold the property investments for the long term it is reasonable to conclude that any gains made on the property.