In the lead-up to 30 June, 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 a 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 (or your accountant) 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%.

As Accountants, we are very aware of these tax laws and can make this easy for you.