Unit trust investments: how are distributions taxed?

What is a unit trust and a distribution?

A unit trust fund is a collective investment fund that pools investors' money (unit holders). The fund's income — for example dividends, interest and gains — can be distributed to unit holders as distributions.

This article explains the tax treatment in the hands of unit holders (individuals).

Basic treatment: distributions are taxed in the hands of unit holders

Under HASiL Public Ruling No. 5/2013, unit holders are taxed on distributions received from unit trust funds in the basis year for a year of assessment.

If tax has been paid at the fund level, unit holders can claim a tax credit under subsection 110(9A) of the ITA 1967.

Source: HASiL — Public Ruling No. 5/2013; Income Tax Act 1967.

What is exempt from tax in the hands of unit holders?

Exempt from tax in the hands of unit holders:

1. Certain interest income and foreign-source income that is exempt from tax at the unit trust level;
2. Distributions of gains from the disposal of investments by the fund;
3. Gains realised by unit holders — other than securities dealers or financial institutions — on the sale/redemption of units;
4. Bonus unit issues — unless the bonus units represent a distribution of income derived from investments by the unit trust.

Source: HASiL — Public Ruling No. 5/2013.

Undistributed income

Fund income/gains that are not distributed are not taxed in the hands of unit holders.

Source: HASiL — Public Ruling No. 5/2013.

Non-resident unit holders

Non-resident unit holders are not subject to withholding tax on income distributions from unit trusts.

Source: HASiL — Public Ruling No. 5/2013.

REIT / Property Trust Fund (PTF) — new regime from YA 2026

REIT (Real Estate Investment Trust) and PTF (Property Trust Fund) have a special regime:

• If ≥90% of total income is distributed in the basis period, the fund is exempt from tax under section 61A of the ITA;
• Payments to unit holders are made after the closing of accounts;
• From YA 2026, the withholding-rate regime of Part X Schedule 1 of the ITA ceases;
• Unit holders are taxed at their respective rates:
• Resident individuals: scale rates;
• Resident companies: corporate rate (24% in the table of Practice Note 2/2026);
• Non-residents: 30% of chargeable income;
• Foreign institutional investors: 30%;
• Section 109D does not apply to resident unit holders;
• Resident unit holders are required to report distributions in the BNCP;
• Unit holders must report taxable distributions in the Return Form together with other income sources.

Source: HASiL — Practice Note No. 2/2026; HASiL — Public Ruling No. 1/2021.

Current rates for ordinary unit trust funds (non-REIT)

Simple examples

Nadia holds units in an ordinary unit trust fund. She receives an income distribution of RM2,000 in 2026. This distribution is taxed in Nadia's hands, and a tax credit under subsection 110(9A) can be claimed for tax already paid at the fund level.

Kumar sells his fund units and makes a gain of RM5,000. As an individual investor (not a securities dealer), this gain from unit sales is usually exempt from tax.

Alya holds REIT units. From YA 2026, the old withholding-rate regime ceases. Alya (a resident individual) is taxed at scale rates on the distribution, and must report the distribution in the BNCP.

(Illustrative examples to show concepts — not specific tax advice.)

Frequently Asked Questions (FAQ)

Q. Are unit trust distributions taxed? A. Yes — distributions are taxed in the hands of unit holders in the year received. A tax credit under subsection 110(9A) can be claimed for tax paid at the fund level.

Q. I sold unit trust units at a profit — is it taxed? A. Gains realised by unit holders on the sale/redemption of units are usually exempt — unless you are a securities dealer or a financial institution.

Q. Are bonus units taxed? A. Bonus unit issues are usually exempt — unless the bonus units represent a distribution of income from the fund's investments.

Q. I am a non-resident — is my distribution subject to withholding tax? A. Non-resident unit holders are not subject to withholding tax on income distributions from unit trusts.

Q. REIT vs ordinary unit trust — are they the same? A. No — REIT/PTF and ordinary unit trusts have different regimes since YA 2026. See the REIT/PTF section above.

Glossary

• Unit trust fund — a collective investment fund; unit holders hold units in the fund.
• Distribution — a payment of the fund's income to unit holders.
• REIT — Real Estate Investment Trust.
• PTF — Property Trust Fund.
• BNCP — Income Tax Return Form.
• Tax credit — a reduction of tax based on tax already paid at the fund level (subsection 110(9A)).
• ITA 1967 — Income Tax Act 1967 (Act 53).