What is a bucket company and how it cuts your tax
On $400,000 of surplus trust income, a bucket company saves $88,000 a year. That is the difference between 47% personal tax and 25% company tax, every year the structure is in place.
How a bucket company sits inside your trust structure
A bucket company is not a special entity. It is a standard private company registered with ASIC, positioned underneath a family trust to catch surplus distributions that no individual beneficiary needs.
The name comes from the metaphor: the company sits like a bucket beneath the trust, collecting profit that would otherwise flow to individuals and be taxed at their marginal rate. Three conditions make it worth considering.
First, your trust distributes more than $180,000 to individuals already at the top marginal rate. Second, you have a profitable year with surplus beyond what beneficiaries need for living expenses. Third, your business is accumulating capital rather than consuming every dollar.
If your family needs all the distributed cash to cover day-to-day costs, a bucket company creates a cash flow problem rather than a tax saving. And if trust distributions are modest enough that beneficiaries sit below the company tax rate, the structure costs more than it saves. This is not a replacement for legitimate income splitting to lower-income family members. It is a strategy for surplus profit that no one in the family needs right now.
Bucket company tax rate: what the numbers look like at your scale
The same $400,000 of surplus trust profit, two different outcomes. The gap is $88,000 per year at the base rate, and it compounds.
Without a bucket company: $188,000 in tax
A family trust distributes $400,000 of surplus profit to an individual beneficiary already at the top marginal rate. Tax at 47% (including Medicare levy) equals $188,000. Cash retained after tax: $212,000. Over five years, that is $940,000 lost to personal income tax on surplus profit the beneficiary did not need for living expenses.
With a bucket company: $100,000 in tax
The same $400,000 distributed to a bucket company. Tax at 25% (base rate entity) equals $100,000. Cash retained in the company: $300,000. Annual saving: $88,000. Over five years, that is $440,000 in retained capital. The 25% rate applies to base rate entities with aggregated turnover under $50M and passive income at 80% or less of assessable income. If the 30% rate applies, the saving on $400,000 is still $68,000 per year.
Tax minimisation servicesHow to get money out of a bucket company
The saving means nothing if the money is trapped. Three pathways exist, and each one requires planning before the distribution is made.
Three structural risks that break a bucket company
If your accountant has never raised these risks, it is worth asking why.
Division 7A non-compliance
If the bucket company lends money to a shareholder or associate without a complying loan agreement, the ATO treats the loan as an unfranked deemed dividend. The full amount is taxable at the recipient's marginal rate, up to 47%. No franking credits apply. The saving you built the structure to achieve is wiped out. Complying terms require a written agreement, 7 or 25 year repayment, ATO benchmark interest, and minimum yearly repayments.
Trust deed incompatibility
The bucket company must be a valid beneficiary under the family trust deed. If the deed does not name the company or include a beneficiary class that covers it, the distribution is invalid. A deed amendment may be needed, and this can trigger CGT consequences. The Family Trust Election interaction also matters: distributions to a company outside the family group trigger Family Trust Distribution Tax at the top marginal rate plus Medicare levy.
Missing the 30 June trustee resolution
Trustee resolutions for trust income distribution must be made by 30 June of the relevant income year. A resolution made after 30 June is ineffective. The trustee can be assessed on the entire trust income at the top marginal rate. Bucket company decisions for the current financial year must be locked in before this date. Annual distribution decisions require proactive planning, not a phone call in July.
Bucket company setup and ongoing management
Structure and ASIC registration
Parkview registers the company with ASIC, sets the director and shareholder structure, and provides guidance where the bucket company interacts with other entities in your group. The structure is built to fit your existing trust, not from a template.
Trust deed and FTE review
Parkview reviews your family trust deed to confirm the bucket company is a valid beneficiary. If the deed needs amending, we coordinate the amendment and assess CGT implications. We check the Family Trust Election interaction so distributions do not trigger Family Trust Distribution Tax.
Division 7A loan drafting and maintenance
Parkview drafts complying loan agreements, sets repayment schedules, and applies the ATO benchmark interest rate each year. Loan balances are tracked in monthly reporting. You do not find out about a missed repayment in September.
Annual distribution recommendation before 30 June
Each year, Parkview recommends the optimal distribution split between beneficiaries and the bucket company. The recommendation is based on current-year profit, each beneficiary's tax position, and cash flow needs. Built into the monthly retainer, not billed separately.
Ongoing compliance and reporting
Annual company tax return, ASIC annual review, franking account maintenance, and integration with your monthly management reporting. The bucket company appears in the same reporting you review with Parkview each month.
Common questions about bucket companies
When a bucket company is wound up, retained profits distributed to shareholders on liquidation are treated as dividends to the extent of the company's retained earnings. Franking credits can offset some of the personal tax, but the distribution is assessable income. CGT implications also arise on the cancellation of shares. If you sell the business and the bucket company holds accumulated capital, the exit strategy needs to account for how those funds are extracted. Parkview builds the exit pathway into the structure from day one, not as an afterthought.
Structuring services that work with bucket companies
Family trust setup
A bucket company only works if the trust above it is structured correctly. Parkview establishes or reviews the trust deed before the company is registered.
Corporate trustee services
Trustee structure decisions surface during most bucket company engagements. A corporate trustee limits personal liability in ways an individual trustee cannot.
Business structuring services
A bucket company is one piece of a broader structural picture. Entity changes, partner buy-ins, and operational restructures sit alongside it.
Tax planning services
Annual distribution decisions are tax planning exercises. Parkview models the optimal split before 30 June each year.
See whether a bucket company fits your trust structure
A distribution strategy session run by Parkview's structuring team.
Thirty minutes. We review your trust deed, your current distribution pattern, and your projected year-end position. You leave knowing whether a bucket company would save tax in your situation, not in a generic example.
- Confirm whether your trust deed supports a bucket company beneficiary
- Model the saving against your actual current-year profit
- Map the Division 7A and FTE consequences before any setup begins
