Hi there fellow business owners,
When it comes to optimizing your tax planning, exploring different structures and strategies can lead to significant savings.
In this blog post, we will examine the concept of a bucket company and how it can help cap tax liabilities on distributed profits from a trust. By understanding this approach, you can potentially reduce your tax burden and maximize your financial gains.
Let’s dive into the advantages of using a bucket company.
By implementing these techniques, you can lower your tax liabilities while simultaneously boosting your financial portfolio.
Tax Cap on Distributed Profits: A bucket company provides an opportunity to limit the tax payable on profits distributed from a trust. By directing these profits to a company, you can benefit from the lower company tax rate of 30% or even the reduced small business company tax rate of 25%, which is significantly lower than the individual top marginal tax rate of 47%.
Illustrating Tax Savings: To grasp the potential tax benefits, let’s examine two options. Suppose a trust generates $300,000 in profits and can make distributions. In option one, we distribute $150,000 to each of Individual 1 and Individual 2, resulting in a total tax payable of $87,134 at the individual top marginal tax rate.
The Power of a Bucket Company: In option two, we distribute $90,000 to each of Individual 1 and Individual 2, while the remaining $120,000 is distributed to a bucket company. Unlike an operating company, a bucket company primarily serves as an asset holding entity and does not engage in business activities. The bucket company will be subject to the lower company tax rate. As a result, the total income of $300,000 is now taxed at only $73,034, resulting in tax savings of $14,100. Furthermore, the funds received by the bucket company can be invested in shares, properties, or loaned to other companies, expanding your wealth-building opportunities.
It’s important to note that this blog post is not intended as final advice but rather an explanation of the potential benefits of using a bucket company.
To determine the most suitable approach for your specific circumstances, it is recommended to seek professional advice from experienced accountants. We can assess your situation and provide personalized guidance to help you save taxes effectively and explore the viability of a bucket company.
You can also watch this video here where I talk about this in detail.
Mick
I’d love to help you achieve your business dreams, please don’t hesitate to contact me;
07 5646 4050
mick@ignitionaccountants.com
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