The bucket company strategy has been one of the most reliable tax planning tools for Australian business owners and family trust holders for decades. But 2026 has changed things considerably.
The High Court’s Bendel ruling and the Federal Budget’s proposed minimum tax on discretionary trusts have put the strategy under serious pressure. So many business owners are having second thoughts about whether the strategy still delivers what it used to.
At Australian Business Magazine (ABmag), we’ve been tracking both developments closely. Based on our research and analysis, this piece breaks down what’s changed, what holds up, and what you should do before the 2028 deadline locks in.
Without further ado, let’s start with the basics.
What Is a Bucket Company in Australia?
A bucket company is a private company set up as a beneficiary of a discretionary trust.
The company receives surplus trust income and pays tax at 25% for base rate entities, or 30% where that threshold isn’t met. That’s a significant saving against the 45% personal rate plus 2% Medicare levy that individuals would otherwise pay (the numbers on this can be significant; we’re talking tens of thousands annually for some families).
The name comes from the idea that income “drops” into the company like water into a bucket. It’s a simple analogy, but it captures exactly how the structure works. The trust distributes income to the corporate beneficiary, and the company pays tax at the flat corporate rate instead of passing those funds to high-income family members.
Three things define how a bucket company fits into a family’s tax structure:
- What It Is: A standard proprietary limited company listed inside the trust deed as a named beneficiary, taxed at a considerably lower rate than most individuals pay.
- Who Uses One: Business owners and investors use it when their family trust generates more income than family members need day-to-day (especially when marginal tax rates sit well above 30%).
- How It Saves Tax: Instead of sending that income to individuals on higher rates, the trust redirects it to the company. That decision alone can shift a significant portion of taxable income from a 45% personal rate down to the applicable corporate rate.
Most families don’t set one up for just one financial year. The real benefit builds as retained earnings grow inside the structure over time. How those earnings get accessed later is a separate conversation.
How Does the Bucket Company Strategy Work?
Rather than letting that income flow straight to high-income individuals at the top marginal rate, a bucket company offers a more tax-effective outcome.
Here’s how it flows: The family trust allocates surplus income to the corporate beneficiary. The company settles its tax bill at the lower rate, and the remaining funds accumulate inside the entity.
From what we’ve seen across Australian family groups, the structure works best when trust income consistently exceeds what the family needs for day-to-day living costs. That’s when the strategy genuinely starts delivering.
As mentioned, the company pays tax at 25%, but only if it qualifies as a base rate entity under ATO rules. That means aggregated turnover under $50 million and no more than 80% of assessable income from passive sources like rent, interest, or dividends. If you miss either condition, the standard 30% corporate tax rate applies instead.
Later on, the family can access accumulated funds through franked dividends (dividends that carry a tax credit for the company tax already paid) or complying Division 7A loans. It’s a tax-effective arrangement, but only when the cash actually transfers to the company.
What Did the Bendel Decision Mean for Bucket Companies?
In a 5-2 majority, the High Court ruled in Bendel [2026] HCA 18 that unpaid present entitlements are not loans under Division 7A. So what does this mean for you in practice?
For context, an unpaid present entitlement (UPE) arises when a trust allocates income to a corporate beneficiary but doesn’t physically transfer the cash. The ATO had treated these arrangements as loans under the Income Tax Assessment Act since 2009, enforcing strict compliance rules throughout.
And the ATO maintained that position unchallenged for over 15 years. At ABmag, this case has been on our radar since the Full Federal Court ruling in February 2025. The High Court’s decision is a real wake-up call for business owners who structured their affairs around the ATO’s previous guidance.
However, it’s not entirely clean sailing. Subdivision EA and section 100A remain active despite the ATO’s Bendel impact statement. TD 2022/11 has been redacted as the only definitive change so far. In plain terms, the ATO retains enough tools to challenge these arrangements and will likely use them more often going forward.
Subdivision EA alone can treat a distribution as a taxable dividend in the year the UPE arises, on timeframes far tighter than the ATO previously allowed. That’s why any group holding existing UPE arrangements needs to review their position carefully. Don’t make changes to how funds flow until you’ve done that.
What Are the Tax Benefits of a Corporate Beneficiary?
There are two advantages most families overlook when setting up a corporate beneficiary: asset protection and genuine flexibility over when personal tax gets paid. And both deserve a closer look.
How Asset Protection Works Inside the Structure
Holding your bucket company shares inside a separate discretionary trust is one of the most effective decisions you can make for long-term protection.
As retained earnings build up, the company’s value grows over time. At that point, personal share ownership leaves those assets directly exposed to creditor claims, family law proceedings, and estate disputes. So placing those shares inside that same trust creates a legal barrier between the company’s accumulated wealth and any claims against you directly.
Believe it or not, most business owners only think about this after something goes wrong.
When Does It Still Make Sense to Pay Tax This Way?
The structure still delivers a genuine tax advantage when the trust generates more income than beneficiaries need for living expenses.
High-income families with at least one member on a lower marginal rate get the most out of it. That’s especially true when retained profits stay reinvested inside the company rather than drawn out straight away.
Quick Note: The bucket company’s rate advantage shrinks when every family member already sits on a high marginal rate, and no low-income beneficiary is available. In that case, the whole arrangement needs rethinking in the near future.
Those advantages are real, but they don’t exist in isolation. Division 7A sits right underneath all of it, and one compliance slip can leave you facing a tax bill that wipes out months of planning.
What Does Division 7A Mean for Your Bucket Company?
When a family trust distributes income to the bucket company, the cash must physically follow. If it doesn’t, an unpaid present entitlement arises between the trust and the private company. Under the Income Tax Assessment Act, the ATO treats that as a financial accommodation (think of it as an informal loan that creates compliance obligations).
To stay compliant, the trust must repay the full amount before the company’s tax return due date. Alternatively, the parties can formalise it under a Division 7A loan agreement with minimum annual repayments. Either way, the ATO charges interest at the commercial rate prescribed for that income year.
For 2025-26, that benchmark sits at 8.37%. If you miss the minimum repayment obligation, the ATO deems the entire outstanding amount an unfranked dividend.
In our experience covering Australian private group structures, this trap catches more business owners than any other compliance error in this space. So, loan documentation isn’t optional anymore. And that includes reimbursement agreements (formal records that confirm how funds move between the trust and the company).
How Does the 2026 Budget Affect Your Family Trust?
As we covered earlier, the 2026 Federal Budget proposed the most significant changes to discretionary trust taxation in decades. ABmag has unpacked these proposals in detail, and the picture for corporate beneficiaries is considerably more complex than the headline 30% figure suggests.
This is a pressing concern for any family group currently running a bucket company structure. So let’s break down what’s actually changing.
The 30% Minimum Tax on Discretionary Trusts
From 1 July 2028, trustees must pay a minimum 30% tax on the trust’s taxable income, regardless of how distributions flow to beneficiaries. Individual beneficiaries get a non-refundable credit for the tax the trustee pays. Corporate beneficiaries, on the other hand, get none of that. No credit, no offset, nothing.
On top of that, no grandfathering applies, so the 2028 start date catches existing discretionary trusts too. If your structure relies on streaming trust income to a bucket company, that approach faces a serious rethink.
Trusts operating under a family trust election face an added layer of complexity. That election restricts which individuals can receive distributions, which limits your options considerably when the minimum tax kicks in.
How Company Tax Gets Applied Twice
Under current law, trust distributions to a bucket company face tax once at the corporate level. But under the proposed rules, that same income faces tax twice (that’s a jump from 25% to 55% at the corporate level alone, before a single dollar reaches an individual).
The table below shows exactly how the numbers stack up:
| Current Law (Pre-2028) | Post-2028 (Proposed) | |
| Trust income | $100 | $100 |
| Tax at trustee level | $0 | $30 (30% minimum tax) |
| Income to bucket company | $100 | $100 (no credit for trustee tax) |
| Company tax paid | $25 (25% rate) | $25 (25% on full $100) |
| Total tax at company level | $25 | $55 |
| Effective rate at company level | 25% | 55% |
| Effective rate on final distribution | ~47% (with franking) | 62–70% |
In the worst-case scenario, the effective rate on trust income routed through a bucket company could hit 70% once it reaches an individual. And to be honest, that’s not a tax burden any business owner should absorb willingly.
Franking credits explain why corporate beneficiaries face a worse outcome. Individual beneficiaries can at least offset the trustee-level tax against their own liability. But corporate beneficiaries can’t claim that credit at all, which means more tax flows out with no way to recover it.
What Happens to Capital Gains and Asset Protection Now?
Business owners running bucket company structures face structural risks beyond income tax alone. Most of these risks tend to catch people completely off guard.
Here’s what you need to know across three areas ahead of those changes:
The CGT Discount Your Bucket Company Can’t Access
Let’s take capital gains tax first. A bucket company doesn’t qualify for the 50% CGT discount that individual beneficiaries can access.
So if the company holds growth assets like shares or property, every dollar of capital gain gets taxed at the full corporate rate. Keeping those holdings inside the family trust itself gives you access to the CGT discount on disposal.
The Franking Credits Trap
On the franking credits side, the picture is equally tricky. As the company accumulates tax paid at the corporate level, it builds up credits over time.
But post-2028, distributing enough franked dividends to actually use those credits becomes considerably harder. The mismatch between credits generated and credits usable is what creates the trap. In practice, some of those credits may never reach a shareholder at all.
The Rollover Relief Window
There’s still a window of opportunity for existing structures to reposition before the 2028 rules lock in.
The rollover relief period runs from 1 July 2027 to 30 June 2030. It gives eligible groups a CGT-free path to restructure into a company or fixed trust without triggering a tax liability on the way out. For many Australian business owners, that three-year period is the most tax-efficient opportunity they’ll get to redirect future investments into a more suitable arrangement.
That said, family trust restructuring carries its own tax consequences beyond CGT. Getting across those details early, with specialist tax advice, puts you in a far stronger position going into 2028.
Time to Take Stock of Your Tax Structure
The bucket company isn’t dead for everyone. But the opportunity to act decisively is narrowing, and wishful thinking won’t protect your retained profits or your tax savings.
In the long run, the business owners who come out ahead are the ones who review their position early and take qualified professional advice before the legislation locks in. That’s not a guarantee, but it’s the most reliable move available right now.
So here are four steps worth acting on:
- Review Your Trust Deed: Confirm the company remains a valid beneficiary under current distribution rules. It should be the first document your accountant looks at.
- Model Your Tax Position: Your accountant can help you assess whether your post-2028 financial objectives still stack up under the proposed changes.
- Check Existing UPE Arrangements: The Bendel decision shifted how compliance obligations apply to these structures. Get professional guidance on any Subdivision EA exposure sooner rather than later.
- Assess Your Options Early: A fixed trust or direct company structure might suit your long-term plans better than what you currently have. The rollover relief window makes that transition tax-effective for eligible groups.
For more insights on tax planning, business structures, and strategies that matter to Australian business owners, visit Australian Business Magazine. We cover the developments that affect your bottom line, so you don’t have to piece it together from a dozen different sources.
FAQs About Bucket Companies in Australia
These are some of the most common questions we hear from Australian business owners exploring this structure:
Does a Bucket Company Help with Tax Losses?
A bucket company doesn’t pass tax losses back to the trust or its beneficiaries. Any losses sit inside the company under Australian tax laws and can only offset future income the company earns directly. Tax professionals generally recommend keeping loss-generating assets outside the structure for this reason.
Can a Bucket Company Hold an Investment Portfolio?
Yes, but with limitations. A bucket company can hold shares, managed funds, and other assets as part of a broader investment portfolio. The significant benefit is tax deferral on investment income.
The catch is that rental income and passive earnings push the company toward the 30% rate rather than the lower company tax rate of 25%.
Does a Bucket Company Protect Personal Assets?
Yes, to a degree. A bucket company acts as a separate legal entity, which means personal assets sit outside its liabilities in most circumstances.
Registering the company with the Australian Securities and Investments Commission (ASIC) is the first step. For stronger protection, holding the company’s shares inside a discretionary trust adds another barrier between the company’s value and personal exposure.
How Does a Bucket Company Distribute Profits to Shareholders?
To distribute profits, the company must declare dividends through a formal board resolution.
Shareholders physically pay tax on those dividends at their marginal rate, with franking credits offsetting some of that liability. Tax efficiency improves considerably when dividends flow to lower-rate individuals rather than those already sitting near the top marginal tax rate.
When Should You Get Professional Advice on Managing Wealth Through a Bucket Company?
The flat corporate tax rate and the compliance rules around it aren’t always straightforward. Most tax professionals recommend reviewing your structure annually, especially for successful businesses with growing retained earnings.
After all, managing wealth across multiple entities requires a clear plan, and the tax owed at each level needs careful modelling before you make any structural decisions.
Disclaimer
This article is for general information only and does not constitute financial, tax, legal, or accounting advice. Everyone’s circumstances are different, and you should seek advice from a qualified accountant, tax adviser, or other professional before making any decisions. Australian Business Magazine (ABMAG) is not responsible for any actions taken based on the information in this article.
