"Bucket company" isn't a legal term. It's the nickname for an ordinary private company whose job is to catch trust profit that would otherwise be taxed at the top personal rate. It's one of the most common tools in Australian family business structures, and one of the most misunderstood.
This guide explains how it works, what it really saves, the Division 7A and unpaid entitlement rules (which changed in June 2026 when the High Court decided Bendel), when a bucket company doesn't help, and what the proposed 2028 trust tax would do to it.
What is a bucket company?
A bucket company is a company that's named, or falls within a class, as a beneficiary in your family trust deed. Each year, once family members have received income up to the point where it suits them, the trustee resolves to give the rest of the trust's income to the company.
The company pays tax on that income at the company rate. The cash then sits in the company (or is invested by it) until it's paid out as a dividend, possibly years later.
The structure usually looks like this:
| Entity | Role |
|---|---|
| Family trust (with its own trustee company) | Owns the business or the shares in the trading company. Earns the profit |
| Family members | Receive distributions up to a sensible tax rate |
| Bucket company | Receives the excess distribution and pays company tax on it |
| Shareholder of the bucket company | Often the family trust itself, or a second trust, so future dividends can go to the right person |
How does a bucket company save tax?
The saving comes from the gap between the top personal rate and the company rate.
| Who receives the income | Tax rate on the next dollar (2026–27) |
|---|---|
| Individual earning over $190,000 | 45% plus 2% Medicare levy = 47% |
| Individual earning $135,001 to $190,000 | 37% plus 2% Medicare levy = 39% |
| Company that is a base rate entity | 25% |
| Company that isn't a base rate entity | 30% |
A company is a base rate entity, and pays 25%, if its aggregated turnover is under $50 million and no more than 80% of its assessable income is passive income such as interest, rent and most dividends. A trust distribution counts as passive income to the extent it comes from the trust's own passive income. So a bucket company receiving a share of a trading business's profit can often pay 25%, while one receiving distributions of rent and dividends will pay 30%. Check the ATO's company tax rate rules for your situation.
Is a bucket company a saving or just a deferral?
Mostly a deferral. This is the part people skip.
When the company eventually pays the money out as a franked dividend, the shareholder is taxed at their marginal rate and gets a credit for the company tax already paid. If the shareholder is on the top rate at that time, they pay the difference as top-up tax, and the total ends up around 47% again.
The real saving comes when:
- the dividend is paid later to someone on a lower rate, such as you in retirement, a spouse who has stopped working, or adult children with their own lower incomes (and who actually keep the money)
- the money stays invested in the company for many years, so the deferred tax is working for you in the meantime
- the money is used to repay debt or fund investments inside the company rather than personal spending
If you need the money for living costs now, a bucket company doesn't help much. You'll either pay top-up tax on a dividend or take a Division 7A loan with compulsory repayments.
Worked example: bucket company vs taking it all personally
Hypothetical, rounded, 2026–27 resident rates, Medicare levy included, offsets ignored. Assumes the company pays 30%.
A family trust makes $400,000 of profit. Two spouses each receive $135,000 (tax of about $33,720 each). That leaves $130,000.
| Option A: extra $130,000 to one spouse | Option B: $130,000 to a bucket company | |
|---|---|---|
| Tax now on the $130,000 | About $56,700 (at 39% and 47%) | $39,000 (30%) |
| Cash left after tax | About $73,300, in the spouse's hands | $91,000, in the company |
| If paid out later as a franked dividend to someone on the top rate | — | Top-up tax of about $22,100. Total tax about $61,100 |
| If paid out later to a retiree with no other income | — | About $32,100 tax in total, because excess franking credits are refunded |
Two lessons from the table. First, the bucket company defers about $17,700 of tax this year. Second, whether that becomes a real saving depends entirely on who receives the dividend and when. Paid out at the top rate, it costs slightly more than Option A. Paid out in retirement, it's a large saving.
How does Division 7A affect a bucket company?
Division 7A stops private companies from handing money to shareholders and their associates tax-free as loans or payments. If the bucket company lends money to you, your family or your trust, that loan must be on a complying written loan agreement by the company's tax return lodgment day, with:
- interest at least at the ATO's benchmark rate, which is 8.77% for 2026–27
- a maximum term of 7 years unsecured, or 25 years if secured by a registered mortgage over real property
- minimum yearly repayments of principal and interest
Miss any of those and the amount is treated as an unfranked dividend, taxed at the borrower's marginal rate.
Example: if you borrow $91,000 from the company on a 7-year loan at 8.77%, the minimum repayment is roughly $17,900 a year, and the interest is income to the company. Our Division 7A guide covers the rules in full. Our Division 7A agent calculates the minimum repayment and benchmark interest for each loan; your accountant checks it and explains what you need to pay before 30 June.
What about unpaid present entitlements (UPEs) after Bendel?
A UPE arises when the trust resolves to distribute to the bucket company but doesn't pay the cash. The trust keeps using the money, and the company has a right to be paid. For years, the ATO's view was that once the company's tax return was due, an unpaid entitlement was a loan from the company to the trust, caught by Division 7A.
On 10 June 2026, the High Court decided Commissioner of Taxation v Bendel and rejected that view. A bare unpaid entitlement owed by a trust to a company beneficiary is not a loan under Division 7A. The ATO has since published a decision impact statement accepting that, if the company does nothing with its entitlement, no Division 7A loan arises.
What hasn't changed:
- Subdivision EA still applies. If the trust uses the money owed to the company to pay, lend to or forgive a debt for a shareholder of the company or their associate, that can be a deemed dividend. In practice: if the trust keeps the company's money and lends it to you, you may still have a Division 7A problem.
- Section 100A still applies. If the entitlement is part of an arrangement where someone else gets the benefit, the trustee can be taxed at 47%. The ATO's section 100A guidance treats a family-group bucket company as lower risk where the entitlement is paid out or the money is kept on commercial terms.
- Existing complying loans keep running. If you put past UPEs on 7-year or 25-year loan agreements, those are real loans. Don't stop the repayments without advice.
- The ATO is reviewing its guidance, including the determination that set out its old view. The Government has said a separate measure bringing UPEs within Division 7A will be "progressed separately". Nothing has been introduced, so it isn't law.
Our practical view: a UPE left unpaid for years is still a risk, just a different one. Paying the entitlement, or documenting what the trust is doing with the money on commercial terms, remains the safer course.
When does a bucket company not help?
| Situation | Our usual view |
|---|---|
| Trust profit is fully used by family members below the 39% bracket | No bucket company needed |
| You need the cash for living costs this year | Little benefit; you'll pay top-up tax or take on loan repayments |
| The trust makes a capital gain | Don't send it to the company. Companies get no CGT discount, while individuals and trusts keep the 50% discount on growth up to 30 June 2027 |
| The trust has made a family trust election and the company isn't in the family group | Distribution triggers family trust distribution tax at 47%. The company usually needs an interposed entity election |
| The amounts are small | Setup, ASIC and accounting costs can outweigh the deferral |
| The trust deed doesn't name or include the company as a beneficiary | The distribution may be invalid. Check the deed first |
| The plan is to pass the money back to the trust in a circle | High-risk. Circular distributions attract specific integrity rules |
How would the proposed 2028 trust tax affect bucket companies?
This is a Bill, not law. The Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, introduced on 14 October 2026, proposes a 30% minimum tax on discretionary trusts from 1 July 2028, paid by the trustee. Individual beneficiaries would receive non-refundable credits for it. As introduced, company beneficiaries don't receive the credit.
If that survives into law, income routed through a discretionary trust to a bucket company could be taxed at the trust level and again in the company. That would remove most of the case for a bucket company sitting under a discretionary trust. The Bill also proposes a rollover window from 1 July 2027 to 30 June 2030 for families who restructure out of discretionary trusts, for example into a company.
What we're doing about it:
- modelling every trust and bucket company group on current law and on the Bill as introduced
- not restructuring anyone on the strength of a Bill, because restructuring early can trigger CGT and stamp duty you'd never have needed to pay
- watching for changes as the Bill passes through Parliament
Our guide to the discretionary trust tax changes tracks where it's up to.
What about the 2027 CGT changes?
From 1 July 2027 the 50% CGT discount is replaced by cost base indexation for growth after that date, for individuals, trusts and partnerships. That's law. Companies never had the discount, so the gap between holding growth assets in a company and holding them personally narrows from 2027. That makes a company a more reasonable place to hold long-term investments than it used to be. Read more in our guide to the 30 June 2027 tax changes.
How to set up and run a bucket company properly
- Check the trust deed. The company must be a beneficiary, either named or within a class (many deeds include companies in which a primary beneficiary holds shares).
- Decide who owns the shares. Usually a trust, for flexibility. Think about asset protection and succession as well as tax.
- Make an interposed entity election if the trust has a family trust election, so distributions to the company stay inside the family group.
- Use a separate company. Not the trustee company and not the trading company.
- Make the distribution resolution by 30 June, naming the company and the amount or method. See our guide to trust distributions and section 100A.
- Pay the entitlement, or document the arrangement. Transfer the cash, or record the commercial terms on which the trust keeps it.
- Put any loans to the family on Division 7A terms before the company's lodgment day, and make the minimum repayments every year.
- Plan the dividends. Decide who should receive them and when, ideally years ahead.
Mistakes we see with bucket companies
- Using the trustee company as the bucket company.
- Distributing to a company that isn't a beneficiary under the deed.
- Forgetting the interposed entity election and triggering family trust distribution tax.
- Leaving entitlements unpaid for years with no plan, then lending the money to the family.
- Spending the company's money on private costs without a Division 7A loan.
- Streaming capital gains to the company and losing the discount.
- Paying dividends to top-rate shareholders straight away, which wipes out the benefit.
- Assuming Bendel ended all the risk. It ended one argument, not the others.
How BPAG helps
We look after the trust, the bucket company and the family's returns as one group, so the numbers line up. Each year we model where income should go, our trust distribution resolution agent drafts the resolution with the deed's powers and risk flags checked, and our Division 7A agent works out loan repayments and benchmark interest. A qualified accountant reviews every draft and signs off before anything reaches you. We prepare the company tax return and trust tax return, and our tax planning service covers the year-round modelling.
Frequently asked questions
Who should own the shares in a bucket company?
Often the family trust itself, or a separate family trust, so that dividends can later be distributed to whichever family member is on the lowest rate at the time. Holding the shares personally is simpler but less flexible, and puts the shares in one person's name. Avoid arrangements where dividends go round in a circle back to the company.
Can a bucket company invest in property or shares?
Yes. Investing the retained cash is the usual purpose. Keep in mind that a company pays tax at 30% on passive investment income and doesn't get a CGT discount, so it suits income-producing investments held for the long term. Don't use the company's money for private purposes without a proper Division 7A loan.
Can my bucket company lend money back to the family trust?
It can, but a loan from a private company to a trust whose beneficiaries are shareholders or their associates can fall within Division 7A. It needs a complying written loan agreement, interest at the benchmark rate and minimum yearly repayments. Get the loan documented before the company's tax return is due.
Is a bucket company the same as a corporate trustee?
No. A corporate trustee is the company that runs the trust and legally owns its assets. A bucket company is a beneficiary that receives distributions. They should be different companies: a trustee company with retained profits mixes up roles and creates avoidable risk.
How much does a bucket company cost to run?
You pay for setting up the company, ASIC's annual review fee, a company tax return and financial statements each year, plus any Division 7A loan administration. For the strategy to pay for itself, the amount going to the company each year generally needs to be large enough that the tax deferral clearly exceeds those costs.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.