What Is a Bucket Company in Australia? (2026 Guide)
A bucket company is an ordinary Pty Ltd named as a beneficiary of a family trust. The trustee distributes surplus trust income to it so the tax is capped at the company rate of 25% or 30% rather than an individual marginal rate of up to 47%. The catch is managing the money afterwards: a loan back to the trust needs complying Division 7A terms, and unpaid entitlements carry rules of their own.
Most people meet the term the same way. An accountant mentions it in a June meeting, or an in-law brings it up at a barbecue, and it arrives attached to a claim about saving thousands in tax. The claim is usually true. What tends to go unsaid is that a bucket company in Australia is a second company you now own forever, with its own return, its own paperwork and its own ways of going wrong.
This guide covers the mechanics, the real arithmetic behind the saving, the Division 7A trap, the annual running cost, and what the proposed minimum tax would do to the strategy.
The 2026-27 Federal Budget proposed a 30% minimum tax on discretionary trust income from 1 July 2028, and the Budget papers indicate corporate beneficiaries would get no credit for it. It has not been legislated. What it would change is covered near the end of this guide.
What a bucket company actually is
The name is descriptive rather than technical. Surplus trust income drops into it the way water drops into a bucket. There is nothing special about the company itself: it has a normal ACN, a normal tax file number, normal directors and shareholders, and it lodges a normal company tax return. It is not a separate species of company and you cannot buy one off the shelf as a “bucket company”.
It is also not a loophole. A trustee can distribute to any beneficiary the deed permits, and a company is taxed at the company rate. Routing income to a company is the ordinary interaction of two ordinary structures, which is why the strategy has been in mainstream use for decades.
How a bucket company works with a family trust
The mechanism is four steps.
- The trust earns income across the financial year.
- Before 30 June, the trustee resolves who is presently entitled to that income. Some goes to individual family members and some goes to the company.
- The company reports its share as income in its own tax return and pays tax on it at the company rate.
- The money either sits in the company, gets invested, or comes back out later as a dividend or a loan.
None of this makes sense unless you already understand how a family trust is taxed in Australia, because a bucket company is not a separate strategy so much as one more name on the same distribution resolution. Everything that governs a trust distribution governs this one, including the 30 June deadline.
There is a prerequisite most of the promotional material skips. The trust deed has to permit a company as a beneficiary. Older deeds sometimes do not, and a distribution to a beneficiary the deed does not cover is not a valid distribution. If the trust has made a family trust election, the company also has to sit inside the specified family group, because distributing outside that group attracts family trust distribution tax at 47%.
The rate: 25% or 30% turns on the passive income test
This is where the marketing and the tax law part company.
The company tax rate is 25% for a base rate entity and 30% for every other company. To be a base rate entity, a company needs aggregated turnover under $50 million and no more than 80% of its assessable income from base rate entity passive income, which the ATO’s guidance on company tax rates defines to include dividends, interest, rent, royalties and net capital gains.
The part that decides it for a bucket company: a trust distribution counts as passive income only to the extent it is traceable to income of that kind in the trust. A distribution of rent from an investment trust is passive. A distribution of trading profit from a family business trust is not, so a bucket company under a trading trust can qualify for 25% in the years it receives distributions. The composition changes as the company builds its own portfolio, because its own interest and dividends are passive from the first dollar.
So the rate is a year-by-year test, not a setting. Plan on 30% and treat 25% as the outcome of checking, not the basis for your numbers. Any accountant who quotes you a saving built on 25% without checking the passive income composition is quoting you a best case.
What the saving actually looks like
The top individual marginal rate is 45%, and the Medicare levy adds 2%, so income at the top of an individual’s return is taxed at 47%. A company on the full rate pays 30%.
On $100,000 of surplus trust income, that is the difference between $47,000 of tax and $30,000 of tax.
| Where the $100,000 goes | Tax this year |
|---|---|
| An individual already at the top rate | $47,000 |
| A bucket company on the full company rate | $30,000 |
| A bucket company that qualifies as a base rate entity | $25,000 |
This is a deferral rather than an elimination, which the sales pitch tends to skip. The company has paid tax at 30% on money that still belongs to the family. When it eventually comes out as a dividend, the shareholder pays tax at their own rate and the franking credit covers the 30% already paid. If that shareholder is on the top rate too, the total tax ends up close to where it started. The win is the timing, the flexibility over who receives the dividend, and the years of compounding on money that was not handed to the ATO in the first year.
The Division 7A catch
This is where a bucket company set up by someone who then stopped paying attention turns into a problem.
The trap is simple to fall into. The trust resolves a $100,000 distribution to the company on 28 June. The cash never moves, because the trust needs it as working capital. The company now has an entitlement it has not been paid. For over a decade the ATO treated an unpaid entitlement of this kind as a loan from the company back to the trust, and Division 7A turns a loan that does not meet its requirements into a deemed unfranked dividend, assessable to the recipient with no franking credit to offset it.
The High Court rejected that treatment in June 2026. In Commissioner of Taxation v Bendel, it held that an unpaid present entitlement is not, of itself, a loan for Division 7A purposes, and the ATO has accepted the decision and is withdrawing the ruling that said otherwise.
An unpaid entitlement is still not a parking spot. Division 7A carries a back-up rule for exactly this shape, Subdivision EA, which can bite where a trust sitting on an unpaid company entitlement makes payments or loans to shareholders or their associates. Section 100A sits behind that for entitlements that exist on paper while the benefit goes elsewhere. And an actual loan from the company, as opposed to an entitlement left unpaid, is squarely inside Division 7A and has to comply. A deemed dividend through any of those doors is worse than never having used the strategy: you get the company tax and the personal tax with none of the credit.
The clean ways to run it have not changed.
- Actually pay the distribution across to the company, in cash, so there is no unpaid entitlement in play
- If the trust keeps using the money, document it as what it is: a loan back from the company on complying Division 7A terms, in writing, at the benchmark interest rate with minimum annual repayments
- Keep the loan repayments current every year, not just in the year the agreement is signed
- Keep the trust deed and the list of beneficiaries somewhere you can find them in June
The practical consequence is that a bucket company is a cash-flow decision as much as a tax decision. If the trust genuinely needs the money in the business, routing profit to a company works against the business, and you have to service a loan agreement to keep the arrangement clean.
Getting the money out again
Three routes, and the one you pick has consequences.
The company can pay franked dividends to its shareholders. It has already paid 25% or 30%, so the dividend carries a franking credit and the shareholder tops up to their own marginal rate, or gets a refund if their rate is lower. A company can only frank a dividend to the extent it has tax in its franking account, so the credits available are limited by the tax it has actually paid.
It can lend money to a shareholder or an associate under a complying Division 7A loan agreement. Same requirements as above: a written agreement, the benchmark interest rate, and minimum repayments each year, generally over a maximum of seven years for an unsecured loan. Paying yourself out of a company you control is its own topic, and it is governed by these rules rather than by what feels reasonable.
Or it can keep the money and invest it. This is what most families do, and it makes the shareholder register worth thinking about early. Adding adult children as shareholders once they have their own tax-free thresholds changes who future dividends can be paid to, and it is easier to plan at setup than to rearrange later.
Why not just leave the profit in the trading company?
If the business already runs through a company rather than a trust, this whole question does not arise. Profit stays in the trading company, taxed at the company rate, and there is nothing to distribute. The bucket company exists specifically because a trust cannot retain income. Anything a trustee does not distribute by 30 June gets assessed to the trustee at the top marginal rate, so the trustee has to send the income somewhere every single year whether the family needs it or not.
That is the real function of the strategy, and it explains why so many structures end up as a trust with a company hanging off it. The trust gives flexibility over who receives income. The company gives somewhere for the income nobody wants to receive.
It also explains a reasonable alternative that gets overlooked. A family with no meaningful spread of incomes to distribute across, and no asset-protection reason to hold assets in a trust, is often better served by a plain company from the outset than by a trust plus a second company to catch what the trust cannot keep.
What it costs to run every year
Every page written about bucket companies sells the saving. Almost none of them price the obligation, so here it is.
A bucket company is a second entity for as long as it exists. It lodges a company tax return every financial year, including years it receives nothing. It pays ASIC’s annual review fee. Someone has to keep the loan agreements, dividend resolutions and franking account current. That work does not stop when the trust stops distributing.
Our own figures, for transparency: a family trust return from $660 inc GST and an investment company return from $440 inc GST, so the compliance floor for the pair is around $1,100 a year before ASIC fees.
What a trust return costs and what a company return costs are worth understanding separately, because either one runs to four figures at a firm billing hourly.
That gives you the arithmetic to make your own call. If the surplus income you would route to the company is $100,000, a 17 point saving is $17,000 and the extra compliance is a rounding error. If the surplus is $8,000, the saving is around $1,400 and the second return has eaten most of it. Somewhere between those two the strategy stops being worth the paperwork, and where that line sits depends on your own numbers rather than on a threshold anyone can publish.
What the proposed 30% minimum tax would change
This measure is not law. It was announced in the 2026-27 Federal Budget and still has to pass through Parliament, so treat the detail below as the announced design rather than the final rules.
What was announced is a minimum tax of 30% on discretionary trust income, applying from 1 July 2028 and assessed at the trustee level. Individual beneficiaries would receive a non-refundable credit for the tax the trustee had already paid, so someone already above 30% would simply top up.
The part that matters for this post is that the credit is limited to non-corporate beneficiaries on the ATO’s own summary of the announcement, so a company would not receive one. If that holds through the legislation, income routed to a bucket company would be taxed at the trustee level and taxed again in the company, before anyone in the family has received a dollar.
Australian commentary does not yet agree on the combined effective rate this produces, because it depends on drafting detail that does not exist yet, so it is worth being sceptical of anyone publishing a precise figure. What is clear from the announced design is that there would be two layers of tax where there is currently one. Transitional roll-over relief was also announced, available from 1 July 2027 and time limited to three years, so trusts would be able to restructure into another vehicle without triggering tax on the way out.
The sensible response is neither of the two things page one currently offers. Some firms have not updated their bucket company material at all. One has published an obituary for the strategy. Both are premature. Two full financial years remain under the current rules, the measure has not been drafted into legislation, and a structure dismantled on the strength of a Budget announcement can be harder to unwind than the tax it was avoiding. Reviewing your exposure is a tax advice conversation worth having before June 2027. Acting on it is worth waiting for the bill.
When a bucket company is worth it
- The trust makes surplus income the family does not need to draw
- The individual beneficiaries are already at or near the top marginal rate
- The cash can actually be paid across without starving the business
- Someone is going to keep the loan and dividend paperwork current every year
- The surplus is small enough that the second return eats the saving
- The business needs the money as working capital
- The trust deed does not clearly permit a corporate beneficiary
- The company would be set up and then forgotten until the ATO asks about it
An unmanaged bucket company is worse than no bucket company. The strategy is not clever in itself, it is just arithmetic, and the arithmetic only works while the compliance behind it is kept up.
Whether a trust and a company are the right structures at all sits above the tax question, alongside the sole trader, company and partnership options every Australian business chooses between. If your structure was set up years ago and nobody has looked at it since, that is the conversation to have first.
Quick answers
What tax rate does a bucket company pay?
The company tax rate, which is 25% for a base rate entity and 30% otherwise. A base rate entity needs aggregated turnover under $50 million and no more than 80% of its assessable income from passive sources. A trust distribution counts as passive only to the extent the trust earned passive income, so the answer depends on what the trust does and it can change year to year. Plan on 30% until the composition is checked.
Do you have to actually pay the money to the bucket company?
Paying it across is the clean answer. Since the High Court decided Bendel in June 2026, an unpaid entitlement is not of itself a Division 7A loan, but it is not a free pass: other anti-avoidance rules can apply while the trust keeps the money, and an actual loan back needs a complying Division 7A agreement with interest and minimum repayments.
How do you get money out of a bucket company?
Three ways, each with a tax consequence. It can pay franked dividends to its shareholders, who pay tax at their own rate with the franking credit applied. It can lend money out under a complying Division 7A loan agreement with interest and minimum annual repayments. Or it can keep the money and invest it inside the company.
Does a bucket company have to lodge its own tax return?
Yes, every year, for as long as it exists. It is a separate legal entity with its own tax file number and its own lodgement obligation, even in a year it receives nothing. That annual return is the ongoing cost of the strategy.
Will the proposed 30% minimum tax on trusts kill bucket companies?
It would change the arithmetic significantly, but it is not law. The 2026-27 Federal Budget announced a 30% minimum tax on discretionary trust income from 1 July 2028, and the Budget papers indicate corporate beneficiaries would not receive a credit for it. If that holds, income routed to a bucket company would be taxed twice before anyone receives it. The measure still has to pass Parliament.