If you have a Discretionary or Family Trust that generates profits, then you could use a "bucket company" strategy to help you save at tax time.
A “bucket company” allows you to “cap” the tax on profits distributed by a trust to 30% or 26%. This is much less than the individual top marginal rate of 47%.
But how does it work?
Assume a trust earns $250,000 in profits from business.
Option 1: Distribute profits 50 / 50 to Individuals 1 and 2. Total tax (inc. Medicare Levy) payable = $67,574 (27%)
Option 2: Distribute $90,000 each to Individuals 1 & 2 and distribute balance of $70,000 to a “bucket” company at a 26% tax rate. Total tax payable = $59,074 (24%). (Note: This strategy assumes that the $70,000 in cash is available to be distributed to a bucket company, otherwise what is known as a Div 7A Loan Agreement will need to be entered into and loan repayments made over a 7 year period.)
The VALUE of this strategy is $8,500 in TAX SAVED!
The profits in a “bucket company” can be used to invest in shares, property, or to lend to other entities at a specific interest rate.
If you are interested in using this strategy then you need to discuss this with the team 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 26%.
Our job is to ensure we are very aware of these tax laws and can make this strategy easy for you.
This strategy coupled with a voluntary superannuation contribution can ensure your tax liability is significantly reduced come tax time.
If you are ready to save come tax time then schedule a tax planning meeting with our team today >> book here
The sooner the Growth iQ team can get started on implementing tax saving strategies, the sooner we can help you save tax before 30 June.