Tax Minimisation with a Bucket Company: What Every Business Owner and Property Investor Should Know in 2025

A lot of people ask us whether using a bucket company to minimise tax is legal. In today’s complex tax environment, Australians are facing tax obligations on multiple fronts—from local levies to federal income tax—and it’s no surprise that business owners and property investors alike are actively exploring legitimate strategies to reduce their tax burden.

Traditionally, the bucket company strategy was a closely guarded tool among business owners, used primarily within sophisticated corporate structures. Fast forward to 2025, and even everyday investors are beginning to ask: “How can I use a bucket company to legally minimise tax?”

In this article, we’ll demystify the concept of a bucket company—how it works, the tax treatment involved, and most importantly, whether it’s considered tax avoidance or falls under the scrutiny of Part IVA of the Income Tax Assessment Act. Whether you’re a small business operator, a growing entrepreneur, or a savvy property investor, understanding this structure could be a game changer for your tax planning in 2025 and beyond.

What is a Bucket Company?

A bucket company is simply a proprietary limited (Pty Ltd) company. It generally acts as a corporate beneficiary of a discretionary trust—whether that’s a business trust or an investment trust, including trusts set up specifically for property investment purposes. The term “bucket company” isn’t a technical or legal term; rather, it’s a practical analogy that gained popularity over time. Where the phrase originally came from, or who coined it, remains unclear—but if you know, feel free to DM me on LinkedIn or shoot me an email. I’d love to find out!As mentioned above, the bucket company functions as a holding entity for surplus distributions from a discretionary trust. One of the fundamental rules of a discretionary trust is that it cannot retain profits like a company can—it must distribute all its net income to beneficiaries each financial year. Now, imagine you don’t want to personally receive all of that income—perhaps because it would push you into a higher tax bracket or you simply don’t need the cash right now. This is where a bucket company becomes useful. It steps in to receive the income on your behalf, allowing you to defer personal tax and retain control over how and when the money is used in the future.

Bucket Company Tax Rate

When it comes to bucket companies, the tax rate isn’t fixed—it depends on the type of income they receive. If the income distributed to the bucket company comes from a trading trust—such as a business that provides goods or services—the company may be eligible for the Base Rate Entity (BRE) tax rate, which is 25% for the 2024–25 financial year. But qualifying for this lower rate isn’t automatic. The bucket company must meet two key criteria: its aggregated turnover must be under $50 million, and no more than 80% of its total income can be passive.

This is where many get tripped up. If the bucket company receives 100% of its income from passive sources, such as rental income or distributions from a property investment trust, it will fail the 80% test and instead be taxed at the standard company rate of 30%. However, if the company receives a blend of active (trading) and passive income, and passive income remains under 80% of the total, the 25% rate can still apply.

In short, it’s not just the type of income, but also the proportion of passive income that determines the tax rate. Understanding this balance is critical when using a bucket company as part of your tax planning strategy.

Why Do People Use a Bucket Company?

The main reason people—especially business owners and property investors—use a bucket company is to legally minimise tax when they don’t need to personally access all the income generated by their trust. 

Let’s consider a practical example.

Alecia is a full-time employee earning $170,000 per year. On the side, she runs a web design business earning another $60,000, and she also has a discretionary trust that brings in $30,000 from a mix of rental income and share dividends. If she were to take the entire $30,000 distribution from the trust in her own name, a large portion of it would fall into the top marginal tax bracket, meaning she could be taxed at 47% (including Medicare Levy). That’s $14,100 in tax—almost half—just on the trust distribution alone.

But let’s say Alecia doesn’t need that extra cash right now. Instead of taking it personally, her trust distributes the $30,000 to a bucket company that she controls. If the company meets the Base Rate Entity criteria (e.g. passive income under 80%, turnover under $50 million), it could be taxed at just 25%, meaning only $7,500 in tax is paid. Even if the full 30% rate applies, the tax is still only $9,000, significantly lower than the individual rate.

This approach allows Alecia to cap her tax liability and retain the funds in a separate entity until she decides to withdraw them later—perhaps in a lower-income year or via dividends with franking credits. It’s this flexibility and control that makes bucket companies such a powerful tool for smart income planning.

Watch Out for Unpaid Present Entitlement & Division 7A

Here’s the surprising beauty of a bucket company: it doesn’t just help business owners—it can turn property investors and share investors into savvy business operators without them even realising it. But with that power comes a few responsibilities. Once your discretionary trust starts distributing income to a corporate beneficiary (your bucket company), you’re no longer just an investor—you’re stepping into the world of Division 7A and Unpaid Present Entitlements (UPEs).

When a trust resolves to distribute income to a bucket company, the ATO expects the cash to physically move into the company’s bank account. If the money isn’t actually paid, an Unpaid Present Entitlement is created. From the ATO’s point of view, this can look like the company has effectively lent money to the trust, and that’s where Division 7A kicks in.

Division 7A is designed to prevent private companies from making tax-free loans or payments to shareholders or their associates. So, if the trust doesn’t pay the company what it owes, that unpaid amount can be treated as a deemed unfranked dividend—which means extra tax with no franking credits to soften the blow.

To avoid this, you’ve got three options:

1. Pay the cash to the bucket company by the trust’s lodgement day.
2. Put a division 7A loan agreement in place with interest and regular repayments; or

If you go down the Division 7A loan route, keep in mind that for the 2024–25 financial year, the benchmark interest rate is 7.0%, and loans typically must be repaid over seven years (unsecured) or 25 years (secured by real property). The first repayment must be made by 30 June in the year following the distribution.

So yes, a bucket company can help you think and act like a business owner—but with that comes the need to play by the rules. Manage the cash properly, document everything, and you’ll stay in the ATO’s good books while making the most of this powerful tax tool.

Capital Gains and Bucket Companies: Handle with Care

One area where people often get caught out is distributing capital gains to a bucket company. Unlike ordinary income, capital gains come with a few traps when sent to a corporate beneficiary.

The big one? Companies are not eligible for the 50% Capital Gains Tax (CGT) discount that individuals and trusts enjoy after holding an asset for more than 12 months. So, if a trust makes a $100,000 capital gain on an investment property it’s held for two years, it could apply the 50% discount and reduce the taxable gain to $50,000—but only if it distributes that gain to an individual. If the same gain is distributed to a bucket company, the full $100,000 is taxable, with no CGT discount applied.

That means the benefit of the CGT discount is lost when the capital gain is pushed into a company, potentially triggering more tax than if the gain was left with an individual beneficiary in a lower tax bracket. For this reason, capital gains should be treated carefully in trust distributions, especially if you’re considering using a bucket company strategy. In many cases, it may be better to distribute capital gains to individual beneficiaries or consider other timing strategies to minimise tax effectively.

Final Thoughts: A Powerful Tool—When Used Correctly

A bucket company isn’t just a structure—it’s a strategy. It offers business owners, property investors, and even side hustlers a way to cap their tax, gain flexibility, and build long-term wealth. But it’s not a set-and-forget solution. From Division 7A traps to CGT discount limitations, knowing how and when to use this structure is critical.

If you’re considering setting up a bucket company or you’re unsure whether it fits your current structure, don’t guess. Get the right advice from people who do this every day.

👉 Speak to one of our tax specialists at Investax. We help business owners and property investors use the bucket company strategy effectively—without falling into compliance and Part IVA traps. Whether you’re looking to restructure, minimise tax, or plan for the future, we’re here to guide you every step of the way.

Contact Investax today to explore whether a bucket company belongs in your financial toolkit.

We offer a 15-minute free consultation to discuss your tax, property investment and business needs. Book your complimentary consultation now.

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