How To “Cap” The Tax On Trust Distributions Using A “Bucket Company”
May 2, 2018
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%.
Contact us today! The sooner we get started, the sooner we can help you save tax – well before 30 June for sufficient 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
This document contains general advice only and is prepared without taking into account your particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should speak to a licensed financial advisor who should assess its relevance to your individual circumstances. While The Field Group believes the information is accurate, no warranty is given as to its accuracy and persons who rely on this information do so at their own risk. The information provided in this bulletin is not considered financial product advice for the purposes of the corporations Act 2001.