What is a Bucket Company?

One powerful, yet often overlooked, strategy is the use of a bucket company, especially relevant if you operate through discretionary trusts or multiple entities.

A bucket company is a private company set up as a corporate beneficiary of a trust. Instead of distributing all trust income to individuals (which can attract high personal tax rates), the trust distributes some income to the bucket company, which is then taxed at the corporate tax rate, typically capped at 25% or 30%. This is significantly lower than the top individual tax rate of nearly 47%, helping your RTO retain more profits within its group structure.

How Does This Help Your RTO?

Consider a trust earning $250,000 in business profits:

• Without a bucket company: Income is distributed to individual beneficiaries who pay personal tax rates, potentially resulting in a higher overall tax bill.

• With a bucket company: Part of the income is distributed to the bucket company and taxed at the company rate. The remainder is distributed to individual beneficiaries.

This simple tax capping reduces total tax payable, leading to significant savings, potentially thousands of dollars, which can be reinvested into growing your RTO.

What Can Your RTO Do with Funds Held in a Bucket Company?

The money retained in the bucket company can be used strategically:

• Invest in equipment or technology essential for delivering quality training

• Fund new course development or scope expansions

• Lend to other entities within your business group, facilitating cash flow flexibility

• Support future succession planning or business growth

• By holding these funds within the bucket company, your RTO has a financial reservoir to support its ongoing development without immediate personal tax costs.

Important Considerations for RTOs

• The bucket company must be properly established and named as a trust beneficiary before the end of the financial year.

• If funds distributed to the bucket company aren’t physically transferred, compliance with Division 7A loan rules is essential to avoid additional tax consequences.

• Determining whether your bucket company qualifies as a base rate entity affects the applicable corporate tax rate (25% or 30%).

• Early tax planning, preferably ahead of 30 June, is critical for your RTO to fully benefit from this strategy.

Getting It Right - Professional Guidance is Key

While bucket companies offer excellent tax and cash flow benefits, they require careful setup and ongoing compliance. It’s important to work with an accountant or financial advisor experienced in RTO structures to:

• Review your trust and company arrangements

• Determine the appropriate corporate tax rate

• Establish loan agreements in line with Division 7A

• Tailor a tax strategy aligned with your RTO’s growth objectives

For RTOs striving to maximise after-tax income and maintain strong cash reserves, bucket companies provide a smart, tax-efficient solution. By capping tax rates on trust distributions and creating a flexible fund pool, your RTO can enhance financial planning, asset management, and growth potential.

If you want to explore how a bucket company could work within your RTO accounts and tax strategy, we’re here to help. Don’t wait until the last minute; start your year-end planning now to reap the rewards.

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Shiv Jaidka

Founder