Updated 09 September 2026
A bucket company is a tax structure typically used by business owners and investment trusts, to maximise profits. Why we love bucket companies at Yield is that they are a powerful tool to grow wealth for retirement.
However, the proposed changes in the 2026 Federal Budget have raised a lot of questions about what they could mean for bucket companies. With the recent release of the draft legislation, there is now more clarity around the proposed changes, as well as a potential opportunity for some existing trust structures. We’ve updated this blog with a new section explaining how bucket companies may be affected, the role they could continue to play, and what you may need to consider going forward.
So what is a bucket company? The term ‘bucket company’ is used, as it sits under your business or trust to ‘catch’ some of your profit. Normally this will be money you don’t need for personal cashflow.
If you or your family are running a successful business, a bucket company should always be considered. Similarly if you have a trust you use for investment, you should think about a bucket company. As a financial planner, that regularly work with business owners and HNW, regularly consider bucket companies. We will look at both your business and personal finances, to see how you can include a bucket company, and blend it with other strategies.
In this blog, we cover:
- What is a bucket company and why use one – Video
- How Does a Bucket Company Work?
- How the Proposed 2026 Trust Tax Changes Could Affect Bucket Companies
- How a Bucket Company Strategy Can be Enhanced with a Financial Planner
- Division 7A and Bucket Companies: What Has Changed?
- What to Do with the Money in the Bucket Company
- How Yield Advisors Can Help You
How Does a Bucket Company Work?
A bucket company is usually set up to be the beneficiary of a trust. The trust is often your business, that you pay yourself and your bucket company from. It may also be a beneficiary of an investment trust, that you distribute some income and capital gains into.
One of the key benefits of this is to keep your tax bill down. So you don’t end up paying the individual tax rate on all your earnings. Instead the money paid to the bucket company is only taxed at the corporate tax rate.
Here is a guide to 2026-27 individual tax rates:
Currently, the highest individual tax marginal tax rate is 45% (not including the 2% Medicare levy). By comparison the company tax rate is 30% or 25% for small or medium businesses.
To look at an example, if your businesses profit was $270,000, and you were drawing all of this personally, you would be taxed at 47% on everything above $190K. Therefore in this case $90,000 would be taxed at 47%. This equates to tax payable on this portion of income of $42,300. If instead you directed the same $90,000 to a bucket company, it would only be taxed at the corporate tax rate of 30% or in this case $27,000.
As you can see, with a bucket company in place you could be saving a total of $15,300 per year in tax.
How the Proposed 2026 Trust Tax Changes Could Affect Bucket Companies
When the 2026 Federal Budget was handed down on 12 May, the Government proposed a new 30% minimum tax on certain distributions from discretionary trusts from 1 July 2028. The original proposal raised concerns for people using bucket companies, as distributions to corporate beneficiaries could have faced a significantly higher overall tax burden.
However, draft legislation released on 3 September 2026 represents a significant shift from the original proposal. The draft legislation provides an option for existing discretionary trusts to make fixed distributions to pre-nominated beneficiaries, allowing them to be treated differently under the new rules.
Under this proposed arrangement, a trust can nominate beneficiaries, including a bucket company and fix the proportions in which trust income and capital can be distributed to them. If the trust meets the relevant requirements, it can be excluded from the proposed 30% minimum tax.
Without this proposed change, bucket companies could have faced effective tax rates of up to 70% in some circumstances. With the proposed election, the key trade-off is that trustees would lose some of their annual flexibility to change beneficiaries or alter distribution proportions.
The proposed exemption may be particularly beneficial for business owners who regularly distribute business or investment income between the same beneficiaries, including spouses or a bucket company. Where the same beneficiaries receive distributions each year, the loss of flexibility may have less impact.
For people who already have a trust and bucket company structure, this could provide an opportunity to review their existing arrangements and understand whether the proposed election may be suitable.
However, this arrangement is not necessarily suitable for every trust. Family and financial circumstances can change over time, and the proposed rules include significant consequences if a trust departs from its elected distribution arrangements.
It’s important to remember that these changes are still draft legislation and under consultation, so the rules may change before they become law. If you have an existing trust or bucket company structure, seek professional advice early to understand how the proposed changes may affect you and whether any action may be needed.
How a Bucket Company Strategy Can be Enhanced With a Financial Planner
Because a bucket company is a tax mechanism, it is typically recommended by Accountants. What we see however is that too few people integrate their business structure, with their personal financial plan. This is where financial planning comes in.
At Yield, we believe that your business and personal strategy should be unified. This way your goals and desires both in business and life are considered.
Financial planners, will help you view your bucket company as part of an integrated retirement strategy. The three steps we will help you work through include:
- Step 1: establish a plan to manage your personal income needs, and tax position.
- Step 2: provide advice on how to invest the money.
- Step 3: plan to draw down dividends from your bucket company in a tax effective way. This is usually tied to your retirement plan.
Whatever you decide to distribute to your bucket company, you need to physically pay into the bucket company bank account. Alternatively, if this does not happen before you lodge your tax return, there may be provision to create a Division 7A Loan.
Division 7A and Bucket Companies: What Has Changed?
On 10 June 2026, the High Court of Australia ruled by a 5–2 majority in Bendel that trust income allocated to a company but left unpaid, known as an unpaid present entitlement, is not automatically a loan for Division 7A purposes.
For more than 15 years, the ATO’s approach often required these unpaid amounts to be placed under complying Division 7A loan agreements. This commonly affected businesses that retained the cash for working capital or growth.
These agreements generally required repayment over seven years, with minimum annual repayments of principal and interest at the applicable benchmark rate. They were arranged between the parties and did not require an application to the ATO.
The ruling does not automatically cancel existing Division 7A loans or remove other tax obligations. Its application depends on the trust deed, distribution resolutions and how the funds have been dealt with.
Two material qualifications:
- Existing loans do not automatically disappear. The paper explains that a UPE already legally converted into a loan generally remains a loan despite the decision
- Other tax rules may still apply, including Subdivision EA, section 100A and Part IVA. The decision does not give unrestricted access to bucket-company funds
If your trust distributes income to a bucket company, seek advice before changing existing arrangements or stopping loan repayments.
What to Do With the Money in the Bucket Company
Once the funds are in the bucket company, you should have a plan to invest them. A bucket company is flexible in what it can invest into, including shares, properties and any other private investments. Investment advice is one way a financial planner is perfectly placed to help you. Because we can help you match your investment strategy with your cashflow needs.
Once invested, investment earnings are taxed at the company tax rate of 25% or 30% and accumulate franking credits. Franking credits are the governments way of ensuring you are not taxed twice. Combined with a well thought through strategy, you can pay franked dividends from your bucket company when your income is lower. Our strategy often is to align this to retirement.
When you are ready to withdraw money from your bucket company, it will be by way of a dividend. It is important to understand that dividends must be paid in the exact percentage of the shareholder’s ownership. To keep things flexible and tax effective, a strategy can be to set up another trust to hold the shares of the company.
An added benefit for business owners, is that assets owned by a company or trust provide a level of asset protection. This is in comparison to holding assets in your own name as an individual.
As you can see, utilising a bucket company can enhance your business earnings and your broader financial outcomes. The decision to set up a bucket company however should not be approached lightly and advice is recommended.
How Yield Advisors Can Help You
At Yield, 1/3 of our clients are also business owners, so we are very familiar with the power of bucket companies. We also specialise in working with high net worth individuals, which regularly have investment trusts, where bucket companies can be valuable.
We will help you determine if a bucket company is suitable and work with your Accountants on your broader tax strategy as it relates to your personal financial plan.
If you have questions about your existing bucket company structure or would like to explore how it fits into your broader financial plan, our advisors are here to help. We’re already working with clients to review their structures and staying up to date with the latest tax and legislative changes that may affect them.
Start with a no-obligation consultation with one of our advisors to understand your options, what may need to be reviewed and what steps you could take with confidence.
