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