Bucket Companies: How They Work and When They're Actually Worth It
Reviewed by Patrick Sargent CA, Registered Tax Agent 25758613·Published 1 August 2026 · Last reviewed 2 August 2026·6 min read
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The mechanics in one example
A family trust earns $300,000. The family's sensible distributions are exhausted around $180,000, filling the lower brackets across the household. The last $120,000 faces 39-47% in anyone's hands, or 25-30% distributed to the bucket company.
Where the top $120,000 of trust profit lands
Route
Tax now
Deferred
To the highest earner (47%)
$56,400
Nothing deferred, it is done
To the bucket company (25-30%)
$30,000 to $36,000
Top-up tax to your marginal rate if and when paid out personally as a dividend, with franking credits softening it
Where the top $120,000 of trust profit lands
The saving is a deferral with an option, not a rate cut. The money compounds inside the company on a lower-taxed base and comes out later as franked dividends in years when your personal rate is lower: retirement, a gap year, or spread across family members.
The catch: the cash has to move
Distributing to the company on paper while the trust keeps using the money creates an unpaid present entitlement. The ATO treats that as a Division 7A loan from the company back to the trust, complete with loan agreements and minimum repayments. That treatment is currently under genuine legal challenge in the Bendel litigation, but planning on the ATO's view remains the only prudent default.
When it is worth it, and when it is not
Worth it: sustained trust profits well past the family's lower brackets, a genuine plan for the company-side money (reinvestment, an investment portfolio inside the company, patient extraction in low-income years), and discipline about actually moving the cash.
Not worth it: profits that only occasionally spike, where setup and annual compliance costs (company, returns, ASIC fees, Division 7A hygiene) outrun a one-off saving; owners who will need the cash personally next year, because the top-up tax arrives almost immediately; and anyone who will not maintain the paperwork.
The boundary matters too. Distributions engineered purely to dodge tax, with benefits round-tripping back to someone else, attract section 100A attention. Family trust distribution schemes are a live ATO compliance program, not a quiet corner.
Frequently asked questions
What is a bucket company?
A company beneficiary of a family trust, used to cap tax on surplus trust distributions at the company rate instead of top personal rates.
What tax rate does a bucket company pay?
25% only if it qualifies as a base rate entity. Passive corporate beneficiaries frequently do not qualify, so plan on 30%.
Does the money have to actually be paid to the bucket company?
Yes. Unpaid entitlements are treated by the ATO as Division 7A loans requiring complying terms and repayments. That view is contested in the courts, but it is the safe assumption.
How do I get money back out of a bucket company?
As franked dividends, ideally in later, lower-income years, using the franking credits from the tax the company already paid.
Is a bucket company legal?
Yes. It is ordinary use of the trust and company system, provided distributions are genuine, cash moves or a complying loan exists, and it is not a round-tripping scheme caught by section 100A.
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.
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