Tax Planning - Why use a "bucket company"

In the lead-up to 30 June 2018, we want you to know why using a “bucket company” can be a great strategy to saving tax on trust profits distributed. 

PROFITS FROM A TRUST?

Do you have a Trust that generates profits? If yes, then read on!

 A “bucket company” allows you to “cap” the tax on profits distributed by a trust to 30% or 27.5% 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 or investment.

Option 1: Distribute profits 50 / 50 to Individuals 1 and 2. Total tax (inc. Medicare Levy) payable = $72,764 (29.1%)

Option 2: Distribute $87,000 each to Individuals 1 & 2 and distribute balance of $76,000 to a “bucket” company at a 30% tax rate. Total tax payable = $65,924 (26.4%)

Value of strategy is $6,840 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.

But: 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 27.5%.

As Accountants, we are very aware of these tax laws and can make this easy for you.  Contact us  to make your Tax Planning appointment.  

KEYLINKS
Why use a Bucket Company (Graphic)