I’d love to shed some light on what we call ‘Bucket Companies’, also called:
- Corporate Beneficiary
- Dump Company
- Family Vault
- Second Super
- And a few other creative ones!
Why this strategy is so critical, is because it can help cap your tax rate at 30%.
And as a quick refresher, as a sole trader you can pay up to 51% in tax (including the temporary budget repair levy).
Who is a Bucket Company strategy for?
Ideally:
- Business owners (or investors)
- Running their business or receiving income through a discretionary trust structure
- Not caught under the Personal Services Income (PSI) rules (if you don’t know what this is, hopefully the rules don’t apply, but you can read more on PSI here)
The idea of a bucket company is that they take ‘excess’ profits, after distributing a reasonable amount to the people within a family group.
Bucket Companies are incredibly useful
- For business owners who earn more than their cost of living, and want to build a nest egg for their family;
- When business owners are having big fluctuations in incomes between financial years as they can be used to make the tax bills more consistent; and
- For business owners coming up to retirement or selling their business, and no longer earning as much business income moving forward.
What are the tax benefits of using a Bucket Company?
If done right, Bucket Companies can generally save thousands of dollars in tax for a client, year on year.
Let’s use an example of a trust earning $300k in profit. But we’ll review the tax rates first.
For 2017 FY, the individual tax rates (including medicare levy) are:
