In the lead up to 30 June 2023, we want you to know why using a “bucket company” can be a great strategy for saving tax on trust profits distributed.
PROFITS FROM A TRUST?
Do you have a Discretionary or Family Trust that generates profits? If yes, then this strategy may apply to you.
A “bucket company” allows you to “cap” the tax on profits distributed by a trust to 30% or 25%. 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.
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 = $60,534 (24%). (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 $7,100 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.
Important: 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%.
As your Accountants, 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 2023 for enough time to implement tax saving strategies.
Imagine what you could do with your tax saved! You could:
- Reduce your home loan
- Top up your Super
- Save for a holiday (when we can all travel again!)
- Deposit for an Investment Property
- Pay for your children’s education
- Upgrade your Car
