How a bucket company can save you tax

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How a bucket company can save you tax.


In the lead up to 30 June 2023, we want you to know why using a “bucket company” can be a great strategy for saving tax on trust profits distributed.


Profits from a Trust?

Do you have a Discretionary or Family Trust that generates profits? If yes, then this strategy may apply to you.  A “bucket company” allows you to “cap” the tax on profits distributed by a trust to 30% or 25%. This is much less than the individual top marginal rate of 47%!

Here’s how this works:  
Assume a trust earns $250,000 in profits from business.

OPTION 1

Distribute profits 50 / 50 to Individuals 1 and 2. Total tax (inc. Medicare Levy) payable = $66,734 (26.7%)


OPTION 2

Distribute $90,000 each to Individuals 1 & 2 and distribute balance of $70,000 to a “bucket” company at a 25% tax rate. Total tax payable = $60,534 (24%). (Note: This strategy assumes that the $70,000 in cash is available to be distributed to a bucket company, otherwise what is known as a Div 7A Loan Agreement will need to be entered into and loan repayments made over a 7-year period.)




The value of this strategy is $7,100 in TAX SAVED!

The cash in a “bucket company” can be used to invest in shares, property, or to lend to other entities at a specific interest rate.

Important: You need to discuss this with us BEFORE you do it. There are different tax laws that affect the use of this strategy, and whether your “bucket company” can use a tax rate of 30% or 25%.

Let's work together.

We provide strategic business and tax advisory, underpinned by our expertise in financial planning to ensure we develop financial structures that are smart and well considered.


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