From: Michael Mudman Where units are bought in a hybrid trust, the unit holder is entitled to a proportion of the income generated by the asset held by the trust, which has been funded by the unit-holder. Eg- if the unit-holder borrows $80,000 to purchase units in the hybrid trust and the hybrid trust purchases a property for $100,000, then the rights attached to those units should be so the unit-holder is entitled to 80% of the net taxable income generated by the property. However, as the property increases in value, does the proportion of income flowing to the units diminish? Say, if the property is revalued to $160,000 – and the unit-holder still holds 80,000 x $1 units - would the unit-holder now be entitled to a 50% share of the net income rather than an 80% share? (with the remaining balance of the net taxable income flowing to the discretionary beneficiaries, in the same way as a normal discretionary trust). I read somewhere that this is the case. If so, and the unit-holder is using the income distribution from the trust to negative gear against their borrowings – and rental from the property hasn’t increased at the same pace as the value of the property – surely this must mean the increasing value will also increase the tax benefits of the unit-holder? Therefore any increase in the property's value is an advantage when it comes to negative gearing. Eg- Property value - $100,000 Units held - $80,000 Rental return - $5,000 Property expenses - $2,000 Net return - $3,000 Unit holder’s entitlement (80%) - $2,400 Unit holder’s interest (8%) on $80,000 loan -$6,400 Loss to unit-holder - $4,000 Property re-valued - $160,000 Units held - $80,000 Rental return (no increase) - $5,000 Property expenses - $2,000 Net return - $3,000 Unit holder’s entitlement (50%) - $1,500 Unit holder’s interest (8%) on $80,000 loan -$6,400 Loss to unit-holder - $4,900 I hope this question makes sense!