Using a “Bucket Company” Strategy to Reduce Tax
Why utilising a “bucket company” can be a fantastic way to distribute trust profits without paying large amount of taxes.
What is a “Bucket Company”?
A bucket company is a company that is set up as a beneficiary to a trust. The term ‘bucket’ is used because the company sits below your trust and is used to pour money into it to reduce tax. This allows you to cap your tax payable at a corporate tax rate.
PROFITS FROM A TRUST?
Do you have a family or discretionary trust that makes money? If so, this tactic might work for you.
You can “cap” the tax on income distributed by a trust at 30% or 25% by using a “bucket company.” The top marginal rate for an individual is 47%, thus this is substantially lower!
Here’s how it works:
Let’s say a trust makes $250,000 in revenue from its operations.
Option 1: Divide profits equally between Persons 1 and 2. Total tax due, including Medicare Levy, is $66,734 (26.7%).
Option 2: Give Persons 1 and 2 $90,000 each, and distribute the remaining $70,000 to a “bucket” company at a 25% tax rate. A total of $60,534 (24%) in taxes is due. (Note: This strategy implies that the $70,000 in cash is readily available to be given to a bucket company; alternatively, a Div 7A Loan Agreement must be entered into and loan repayments must be made over a 7-year period.)
This method has a value of $7,100 in TAX SAVED!
The cash in a “bucket company” can be invested in stocks, real estate, or lent to other businesses at a set interest rate.
IMPORTANT: Please talk to us about this BEFORE you take any action. The application of this startegy and whether your “bucket company” can utilise a tax rate of 30% or 25% depend on various tax rules.
We can make this simple for you because, as your accountants, we are quite familiar with these tax laws.
REQUIRED ACTIONS:
Call us right away! We can help you save tax through a “Bucket Company” as soon as we get started – ideally before 30 June 2023 to give ourselves ample time to put tax-saving measures in place.
Consider the possibilities for your tax savings! You might:
- Lower your mortgage loan
- Increase your Super.
- Save for a vacation (when we can all take vacations again!
- Down payment on a rental property
- Spend money on your kids’ education
- Improve your vehicle
The “bucket company” structures can be tricky to set up properly in order to maximise the tax benefits.
Save on your taxes! Take advantage of the 25% or 30% cap on tax rates. Get professional tax assistance when you work with one of our accountants at Success Accounting Group.
About Lan Nguyen
Lan is the Founder and Chief Strategist at Success Accounting Group, Melbourne based CA firm. In a matter of short 8 years she has built up a reputable Chartered accounting firm with 3 offices and a team of 6 professional accountants and support team members. Her mission is to provide Innovative and Strategic Financial advice to help her customers make smarter financial decisions today for a brighter future.
Success Accounting Group is for established business owners who would like help to grow a sustained business. As a business owner you understand what drives your business success with our accounting team taking care of the rest.
Success and Wealth
Success Accounting Group Pty Ltd
Oakleigh, VIC, 3166
