Colonial First State Investments decision illustrates difficulty in a unit trust qualifying as a fixed trust

The recent Federal Court decision of Colonial First State Investments Ltd v Commissioner of Taxation [2011] FCA 16 further highlights the danger of assuming that unit trusts will qualify as "fixed" trusts.

In Colonial, the court found that a large unit trust managed by Colonial First State was not a fixed trust because the trust deed allowed the trust deed to be amended with the approval of a special resolution (in this case 75% of unit holders).

The court effectively decided that, if a unit holder's interest could be reduced or detrimentally affected as a result of a special resolution of unit holders or other actions of the trustee, the unit holder did not have a "vested and indefeasible interest" as required by section 272-5 (schedule 2F- 1936 Tax Act).