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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.
| 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 |
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?
What tax rate does a bucket company pay?
Does the money have to actually be paid to the bucket company?
How do I get money back out of a bucket company?
Is a bucket company legal?
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.