How a “Bucket Company” Can Help You Save Tax in 2025
If you operate your business through a discretionary or family trust, there’s a smart strategy you should consider before 30 June 2025 — using a bucket company to cap your tax rate.
This approach could significantly reduce the amount of tax you pay on trust profits, and it’s one that many business owners are taking advantage of.
What Is a Bucket Company and How Does It Work?
A bucket company is a company set up to receive distributions from a discretionary or family trust. Because companies are taxed at a flat rate (typically 25% or 30%, depending on their size), distributing part of your trust profits to a bucket company can reduce the overall tax paid.
That’s a big win when you consider the top marginal individual tax rate is currently 47%!
How This Strategy Works in Practice
Let’s break it down with an example:
Your trust earns $250,000 in business profits.
Option 1 – Distribute 50/50 to two individuals:
- Tax payable (including Medicare Levy): $61,576
- Effective tax rate: 24.6%
Option 2 – Distribute $90,000 each to the two individuals, and the remaining $70,000 to a bucket company taxed at 25%:
- Total tax payable: $56,676
- Tax saved: $4,900
Note: For this strategy to work, the cash needs to be available for the bucket company to receive. If not, a Division 7A loan agreement may be required, with repayments made over seven years.
What Can You Do with the Funds in a Bucket Company?
The cash in your bucket company doesn’t have to sit idle. You can use it to:
- Invest in shares or property
- Lend to another entity within your group at a commercial interest rate
- Build up funds for future business expansion
It’s a great way to keep profits working for you, rather than losing more to the ATO than you need to.
Things to Keep in Mind
This isn’t a one-size-fits-all strategy. There are important factors we need to consider before implementing a bucket company structure:
- Your company’s eligibility for the 25% or 30% tax rate
- Division 7A rules and documentation
- Timing of distributions
- Whether this aligns with your broader business and investment strategy
At Sharp Accounting, we understand the complexities and will guide you through the setup, compliance, and planning.
Don’t Leave It Too Late
You must act well before 30 June to take advantage of this strategy for the 2025 financial year.
Get in touch now to book a tax planning session and find out if a bucket company could help you save thousands in tax.
Let’s make your trust profits work harder this year. Contact Sharp Accounting today to explore your options and get ahead of the EOFY rush.
