In the lead up to 30 June 2022, we’re talking all things Tax Minimisation & Planning, and how to best prepare for the new financial year. With an array of strategies out there, tax planning is best focused on your business structure and entities. In this article, we’ll talk about why using a “bucket company” can be a great strategy for saving tax on trust profits distributed.

Do you have a Trust that generates a profit?

If yes, then read on!

A “bucket company” allows you to “cap” the tax on profits distributed by a trust to 30% or 26%. 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 = $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 = $57,534 (23%). (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 $9,200 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 25%.

Although this is a great tax savings strategy for business owners and investors, the Tax Office is not a big fan of bucket companies, so great care needs to be exercised in the use of this strategy with the help of a qualified tax accountant only. As your accountants and advisors, we are very aware of these tax laws and can make this easy for you.

NEXT STEPS

Contact us today! The sooner we get started, the sooner we can help you save tax using a “Bucket Company” – well before 30 June for enough time to implement tax saving strategies. Imagine what you could do with your tax saved!

• Reduce your home loan
• Top up your Super
• Have a holiday
• Deposit for an Investment Property
• Pay for your children’s education
• Upgrade your Car

For more information on different Tax Planning strategies and free Tax Minimisation resources, head over here.

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