Hydrogen-etching of 6H-SiC(0001) substrates removed mechanical polishing damage and produced an array of parallel, unit cell high steps. The initial stage of AlN deposition on these etched substrates occurred via island nucleation, both on step edges and on terraces. Coalesced AlN films did not show scratch-induced undulations observed on the surfaces of AlN films deposited on as-received substrates. The films also had a lower density of growth pits. The majority of threading dislocations (TDs) observed in these films were of a type. Jagged networks of misfit dislocations were seen on the terraces in the 15 nm thick AlN/hydrogen-etched SiC composite. GaN islands nucleated primarily at undulations in AlN layers and at hillocks on the AlN surface of as-received and hydrogen-etched substrates, respectively. Complete coalescence of these islands occurred at thicknesses close to 20 nm, and subsequent growth occurred via the step-flow mechanism. Strain measurements showed more strain relaxation in GaN films grown on the hydrogen-etched substrate. On-and off-axis X-ray rocking curves revealed statistically similar full width at half maximum values for both on-and off-axis reflections, indicating similar densities of TDs in the two types of films. The majority of TDs in GaN epi-layers resulted from defective regions observed contiguous to the GaN/AlN interfaces.