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Leverage Bucket Companies to Save 13% (or More!) At Tax Time

How would you spend an additional 13.7%+* saving on your business’s tax bill?

Utilising a bucket company to ‘tip’ a portion of your profits into additional beneficiaries can save your business big bucks at tax time.

This article answers the very important question, what is a bucket company? Also, how much money you have the potential to save, and finally, actionable steps you can take to implement.

Is your business structure serving you as well as it could be?

Most business owners will agree that June 30 can be a stressful time …

That inevitable tax bill arrives.

If your business is already maximising tax deductions, you are on the right path. However, there is a ceiling to how much the deductions can reduce the blow.

One far more effective solution for saving on your tax bill is by utilising a ‘bucket company’ setup.

What is a bucket company?

Bucket companies (also referred to as corporate beneficiaries) allow you to cap your tax rate payable to the ATO at the much lower corporate rate. The buckets work by pouring your profits into a company that sits below your business’ current trust. This flow of money can be imagined as water being poured into a bucket.

You may be wondering if the difference in tax is worth it.

The Gild Group is here to tell you that the difference may shock you. The corporate tax rate (using a bucket) sits at 27.5%* whereas the top marginal rate (without a bucket) is 49%*.

That sounds like an epic unexpected cashflow bonus, right?

How much bucket companies are saving businesses in the real world?

If the functional benefits of this setup aren’t attractive enough already, consider the actual dollar value of annual tax savings. Let’s look at bucket companies from the perspective of a real-life business. From this, you can see just how much money can be saved each year.

In our example, let’s say a trust with 2 beneficiaries earns $250,000 in profits from business.

  • In a standard approach: You would distribute profits 50% / 50% to both individuals. So the total tax payable is $66,734, assuming a 26.7% tax rate
  • Setup a bucket company: If you set up a bucket company, you might distribute $90,000 to each individual and then distribute the remaining balance of $70,000 to a “bucket” company. That balance would be taxed at only 23%. So the total tax payable would be $57,534.

So, in this example, just how much money is this business saving on tax annually?

It’s a 13.7% reduction! A whopping $9,200 for the year.

How do I get my buckets to start pouring!?

The process of setting up a bucket company is actually quite simple. The first step is to research and thoroughly understand your responsibilities to the ATO.

The next step is to set up a trust with a deed that allows for corporations to be beneficiaries if you haven’t already done so.

With an abundance of experience in the world of bucket companies, The Gild Group is the ideal partner to set your business structure up in the most profitable way possible. For over 15 years, we’ve helped talented business owners with all things tax.

*The tax rate is dependent on the specific scenario of the business and the tax rate of the financial year.

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