Bucket companies · Trust tax changes

Bucket company distributions under the proposed 30% trust minimum tax.

The bucket company has been the standard way to cap the tax on trust income the family did not need to spend: distribute to a company, pay the company rate, leave the rest to compound. Under the Bill the trustee pays 30% on that income first, and the company, unlike an individual beneficiary, receives no offset for it. The structure most accountants put in place a decade ago is the one the Bill is aimed at.

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Proposed law

The 30% minimum tax on discretionary trusts is before Parliament and is not yet law. The Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and the Income Tax Rates Amendment (Minimum Tax on Discretionary Trusts) Bill 2026 were introduced on 14 October 2026. As introduced, the tax would apply from 1 July 2028 and the restructure roll-over would run from 1 July 2027 to 30 June 2030. The detail may change before enactment. Last reviewed 27 October 2026.

How it works now

Distribute, pay the company rate, retain.

A discretionary trust makes a corporate beneficiary presently entitled to part of its income. The company includes the amount in its own assessable income and pays tax at the company rate. Franking credits that flowed with dividends received by the trust pass through. The entitlement is often left unpaid, which brings Division 7A into play and has been the subject of years of ATO rulings and court decisions about unpaid present entitlements.

From 1 July 2028

The trustee pays 30% and the company gets nothing back.

The minimum tax is assessed to the trustee on the trust's net income, including the share to which the company is presently entitled. A non-corporate beneficiary receives a non-refundable offset for the trustee's tax on their share; a corporate beneficiary does not. Franking credits on dividends received by the trust are used by the trustee against the minimum tax and do not flow to the company. The explanatory materials are direct about the purpose: the effect of the minimum tax is not to be negated by distributing through a company.

What to do with it

Keep it, repurpose it, or let it be the transferee.

A bucket company with retained earnings and investments is still a company; the retained earnings keep their franking and can be paid out as dividends in the ordinary way. The question is what happens to it next. It can stay as the family's investment company and simply stop receiving trust distributions. It can be the transferee in a roll-over, if its shareholders all pass the continuity test, which in a company owned by the trust itself they may not. Or it can be wound up, with its franking account paid out first. The unpaid present entitlements it is owed by the trust have to be dealt with in any of the three, and in a roll-over they are among the assets and liabilities the all-or-nothing rule counts.

Division 7A

The loans and entitlements do not go away.

Unpaid entitlements from the trust to the company, loans from the company to family members, and any new loans from a transferee company after the restructure, all sit within Division 7A. A restructure is the moment to clean them up; a roll-over that leaves them in place carries them into the company, where the rules are the same and the ATO's attention is higher.

FAQs

Common questions.

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Will a bucket company still reduce the tax on trust income?

Under the Bill, no. The trustee pays 30% on the company's share and the company receives no offset. Distributing to a company would cost more than distributing to an individual on the top rate.

Can the bucket company be the company we roll into?

Only if every person with an interest in it was a beneficiary and family group member just before the transfer. Where the trust owns the bucket company's shares, that has to be restructured first.

What about the franking account?

Credits already in the company's franking account are unaffected. New credits on dividends the trust receives after 2028 stay with the trustee.

Trust tax changes

This page is general information about proposed Commonwealth legislation and current Victorian law. It is not legal or taxation advice and does not take your circumstances into account. The Bills may change before they are enacted, and some matters, including capital gains tax interactions, are to be dealt with in later legislation. Advice should be obtained before any election is made or any asset is transferred.

Page TT-08 · Trust tax changes · Last reviewed 27 October 2026

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