In the lead-up to 30 June 2019, 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 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 = $72,494 (29%)
Option 2: Distribute $90,000 each to Individuals 1 & 2 and distribute balance of $70,000 to a “bucket” company at a 30% tax rate. Total tax payable = $66,194 (26.48%)
Value of strategy is $6,300 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%.
As your Accountants, we are very aware of these tax laws and can make this easy for you.
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.