Last reviewed October 2026
Updated October 2026 for Treasury’s exposure draft legislation of 3 September 2026, which adds an election that can keep the bucket company in play.
The bucket company isn’t dead under the proposed rules, but it is now conditional. Treasury’s exposure draft of 3 September 2026 proposes a 30% minimum tax on discretionary trusts from 1 July 2028, with no credit for that tax when trust income flows to a company. It also offers an election that fixes each beneficiary’s share of income and capital, and in exchange switches the minimum tax off for that trust.
For a business owner sending $200,000 of surplus profit a year to a bucket company, the gap between 30% in the company and 47% in a personal name is $34,000 a year. Whether the election is worth making turns mostly on who owns the company’s shares, and none of this is law yet.
General information only. It isn’t personal advice. Consider speaking with a licensed adviser and registered tax agent about your situation.
Five points decide what happens to your bucket company.
- From 1 July 2028 a discretionary trust is proposed to pay at least 30% tax, and a bucket company gets no credit for it
- Treasury’s draft lets a trust that exists on 1 July 2028 opt out by fixing its distribution percentages for good
- The election can only be made once, in the trust’s 2028-29 income year, and breaking it costs 47% on all the trust’s income that year
- On $200,000 of surplus a year, a bucket company keeps $34,000 a year more invested than a personal name at the top rate
- Who owns the bucket company’s shares becomes a much bigger decision, because a change of shareholder can end the election
What a bucket company does
A bucket company is an ordinary private company set up to receive income from a family trust. Instead of the trust paying all its profit out to family members on the top marginal rate of 47%, it sends the surplus to the company, which pays tax at a flat 30%. The money stays in the company and gets invested, and it comes back out later as dividends with tax credits attached (franking credits), usually when the owners are on lower incomes. Lending the money back to yourself or the trust instead is caught by the Division 7A rules, which can treat the loan as a dividend unless it’s set up on commercial terms.
That’s why business owners have leaned on the structure for decades. It caps the tax on money you don’t need to live on at 30%, and the 17 cents in every dollar it saves gets invested and compounds. Our guide to saving tax when you invest through different structures covers how the company fits alongside trusts, bonds and super.
What’s proposed from 1 July 2028
The 2026-27 Federal Budget announced a 30% minimum tax on discretionary trusts from 1 July 2028. The trustee pays at least 30% on the trust’s taxable income, and individual beneficiaries get a credit for that tax against their own bill. Corporate beneficiaries get no credit at all.
For a bucket company, that means the same income is taxed twice, once at 30% in the trust and again in the company, which takes the combined rate on that income well past 50%. On Budget night that looked like the end of the strategy, and our earlier post on the family trust changes for 2028 was written when it did.
Then Treasury released exposure draft legislation on 3 September 2026, with consultation closing on 18 September. Alongside the minimum tax, the draft includes a three-year rollover to help trusts restructure, running from 1 July 2027 to 30 June 2030, and a new election that lets an existing trust stay out of the minimum tax altogether. Testamentary trusts set up under a will are excluded from the minimum tax under the draft.
Everything in this post is proposed rather than law. The government has said it intends to legislate before the end of 2026, and the detail can still change before then.
The election that keeps the bucket company alive
Treasury calls the trust that makes this election an excluded election trust, and the draft calls the package an electable regime. In plain words, it’s a fixed distribution election. The trustee names every beneficiary the trust will ever pay and the percentage each one gets, and while the election stands, the 30% minimum tax doesn’t apply to that trust.
The rules are tight, so they’re worth reading in order.
- The percentages must add up to 100%, and each beneficiary’s share of income must equal their share of capital
- Nothing can be held back, so the trust can’t accumulate income while the election is in force
- Every beneficiary must be able to benefit under the trust deed on 1 July 2028, and any company or trust you name must exist on that date
- A company can only be named if its shares carry no discretionary elements, so the rights attached to its shares are fixed
- The election is made in the trust’s first income year starting on or after 1 July 2028, so 1 July 2028 to 30 June 2029 for most trusts, and it can only be made once
- A trust that uses the restructure rollover can’t make the election as well
Number 3 is the one that catches people. Your structures need to exist and be set up correctly on 1 July 2028, even though the election itself is lodged during the following year, and a trust or company created after that date can’t use it.
What the election costs you
The price of the election is flexibility, permanently. Once it’s made, the percentages can only change if a nominated beneficiary dies, or if two of them separate under consent orders, a binding financial agreement or a court order. A discretionary trust that has made the election still has the word discretionary in its name, but it can no longer use any discretion.
Breaking the election is expensive. If the trustee pays anyone a share that doesn’t match the nomination, the election is revoked automatically. The trustee is then taxed on all of the trust’s net income for that year at 47%, the minimum tax applies every year after, and the election can never be made again.
The election can also end for reasons that have nothing to do with distributions. Under the draft, it’s revoked if a nominated company is wound up or deregistered, stops being an eligible company, or if one of its shareholders stops holding their shares for any reason other than death or a relationship breakdown. So bringing in a business partner, or passing shares to an adult child, can end the election years later.
Treasury expects the election won’t trigger state stamp duty, because nothing is transferred. That’s Treasury’s expectation of how state law will treat it rather than a ruling from any state revenue office, so it’s worth confirming for your state.
What the bucket company saves
The benefit is the 17-point gap between a 30% company rate and a 47% personal rate, every year, on every dollar you don’t need to live on. Take a business making $400,000 of profit, where the owners live on $200,000 and the other $200,000 is surplus.
Sent to a bucket company, that surplus pays $60,000 of tax and $140,000 gets invested. Paid to an owner on the top rate, it pays $94,000 of tax and $106,000 gets invested. That’s $34,000 a year more working for you in the company, before it earns a dollar.
The table runs both paths for ten years of contributions, then leaves both pools to compound for another 20 years. It assumes a 9% gross return, Vanguard’s long-run figure for shares and a little under the 9.8% in our long-term investment returns research, taxed each year at 30% in the company and 47% personally. The company money is taxed again when it’s paid out, so the table shows that step too.
| $200,000 surplus a year for ten years | Bucket company at 30% | Personal name at 47% |
|---|---|---|
| Invested each year after tax | $140,000 | $106,000 |
| Return after tax each year | 6.3% | 4.77% |
| Value after 10 years | $1,871,517 | $1,319,031 |
| After 10 years, all paid out at once at 47% | $1,417,005 | $1,319,031 |
| Value after 30 years | $6,351,247 | $3,349,606 |
| After 30 years, all paid out at once at 47% | $4,808,801 | $3,349,606 |
| After 30 years, paid out over time at 30% or less | $6,351,247 | $3,349,606 |
Even in the worst case, where the company pays everything out in a single year to owners still on 47%, the company path finishes $97,974 ahead after ten years and $1,459,195 ahead after 30. The extra tax on the way out uses up part of the gap, but by then the company money has compounded at a lower tax rate for decades.
The bigger result comes from paying the money out slowly, when the owners’ incomes are lower. Paid out at 30% or less, the franking credits cover the tax and the company path finishes about $3 million ahead after 30 years.
The same mechanics work at a bigger scale. On $1 million of trust income paid to individuals at the top rate the tax is about $470,000, and streamed to a bucket company it’s $300,000, which leaves $170,000 a year more invested for as long as the structure keeps running.
Your three options before 2028
Every trust caught by the minimum tax ends up on one of three paths, and it’s worth weighing all three rather than defaulting to the election.
The first is to do nothing and pay the minimum tax. For a trust that mostly pays adults already on 30% or more, the credit covers most of it and the change costs very little. For a trust that sends income to a bucket company, it means the double tax every year.
The second is to restructure out of the discretionary trust using the rollover, which is proposed to run from 1 July 2027 to 30 June 2030. Assets can move into a company or a fixed trust without triggering capital gains tax. But the rollover doesn’t cover state stamp duty, every asset has to move inside the window or the relief falls away for all of them, and a trust that starts a rollover can’t fall back on the election.
The third is the election, which keeps the trust and the bucket company in place with no assets moving. It’s the cheapest of the three to put in place and the hardest to undo, and its window closes on 30 June 2029, a year before the rollover window does.
The election suits two groups most. Business owners whose profits run through a trust, where it can cap the tax on surplus profits and on an eventual sale at 30% rather than 47%. And families planning to build serious wealth outside super over the next couple of decades. For a salaried earner without a business or an existing trust, an investment bond usually does a similar job with far less paperwork.
Who should own the bucket company’s shares
Who owns the company’s shares is the decision the whole structure turns on. Historically, a lot of bucket companies were owned by the family trust itself. That way, when the company paid dividends, the trust could send them on to whichever family member paid the least tax that year. The election takes that discretion away, so a trust-owned bucket company may lose much of the reason it was set up that way.
That means the way many bucket companies have been owned in the past may no longer be the best fit, and the right answer depends heavily on the family. A few mechanics shape it. Dividends have to follow share ownership, so whoever owns the shares is who can receive the income later. Transferring shares down the track is a capital gains tax event once the company has built up assets. And under the draft, a change of shareholder can revoke the election.
So the shareholding needs to be right before the trust makes its election in 2028-29, and right for the long term. Getting there means working through who’ll be earning what once you stop working, how a relationship breakdown would be handled, what happens to the shares on death, and how the company fits with the rest of your plan. It’s a decision worth modelling properly with an adviser before any paperwork is lodged, because it’s very hard to change afterwards.
Why paying adult children may be finished
For a long time one of the cleanest trust strategies for families was paying distributions to children once they turned 18, while they were studying or travelling and had little other income. Under the proposed minimum tax, those distributions would carry at least 30% tax, and the credit is non-refundable, so a child on a low income wouldn’t get the difference back.
The election doesn’t obviously save it either. To pay a child under the election you’d have to nominate them for a fixed share permanently, from 2028, and children under 18 are taxed on trust distributions at penalty rates of up to 47%. So for many families, the years between finishing school and earning a real salary may no longer work as a tax planning window.
If you start a business after 1 July 2028
The election is only open to trusts that exist on 1 July 2028. Anyone who starts a business or a trust after that date can’t use it, so the trust plus bucket company structure won’t be available to them on the same terms.
That matters more than it sounds, because a new business usually starts close to $0 and almost everything it’s later sold for is a capital gain. For three years after I started Pivot I paid myself nothing, then $37,000 a year for another two or three, against the $180,000 I’d been earning as an employed adviser. Plenty of founders make a similar bet, and from 1 July 2027 the CGT discount changes already make the eventual sale dearer for an individual.
Frequently asked questions
How does the proposed 30% minimum tax on trusts work?
From 1 July 2028, the trustee of a discretionary trust is proposed to pay at least 30% tax on the trust’s taxable income. Individual beneficiaries get a non-refundable credit for that tax against their own bill, so most adults on 30% or more pay little extra. Corporate beneficiaries get no credit, so income sent to a bucket company is taxed twice.
Is the bucket company dead?
Not under the exposure draft, as long as your trust exists on 1 July 2028 and makes the fixed distribution election in its 2028-29 income year. A trust that doesn’t make the election, or a structure set up after 1 July 2028, faces the double tax on income sent to a company. None of this is law yet.
What is the fixed distribution election, and what does Treasury call it?
Treasury calls a trust that makes it an excluded election trust, under what the draft calls an electable regime. The trustee nominates every beneficiary and a fixed percentage of income and capital for each, adding to 100%, and while the election stands the minimum tax doesn’t apply.
Who should own the shares in a bucket company?
It depends on the family, and under the proposed rules it matters more than it used to. Dividends follow share ownership, transferring shares later is a capital gains tax event, and under the draft a change of shareholder can revoke the election. So the shareholding is worth getting right before the trust makes its election, with advice on your own situation.
When do the trust changes start?
The minimum tax is proposed to start on 1 July 2028. The restructure rollover is proposed to run from 1 July 2027 to 30 June 2030, and the election is made in the trust’s first income year starting on or after 1 July 2028. The government has said it intends to legislate before the end of 2026.
How do you get money out of a bucket company?
Mostly as dividends, paid to the company’s shareholders with franking credits for the 30% tax the company has already paid. If your marginal rate is above 30% when you receive them, you pay the difference, and if it’s below, you get some back. Loans from the company to you or the trust are caught by Division 7A and can be taxed as dividends unless they’re on commercial terms with minimum repayments.
Is a bucket company worth it?
It depends on how much surplus income goes into it and how long it stays there. The company costs money to run each year, and the benefit comes from 17 cents in every dollar staying invested at a lower tax rate for many years. Under the proposed rules, it also depends on whether your trust makes the election in 2028-29, so it’s worth modelling with an adviser before setting one up.
Before your structure is locked in
My view is that for the right people this could be a generational opportunity, because a structure set up properly before the window closes can keep compounding at 30% for decades, and anyone who misses it can’t get it back.
The window for this is short. Your trust, your bucket company and your shareholdings need to be in place on 1 July 2028, the election gets lodged in the year after, and once it’s made it shapes how your family’s income is paid for decades. A common approach is to model the decision now, on the draft, then confirm it once the legislation passes and review it each year until the election is lodged.
These are the questions worth taking to your accountant before then. The rules are new and complicated, and not every accountant is across the detail yet, so if the answers come back vague it’s worth getting a second opinion.
- On our numbers, what does the trust pay over the next ten years with the election, without it, and if we restructure out under the rollover?
- What percentage split would we nominate, and how does it hold up if one of us stops working, separates or dies?
- Does our bucket company qualify as an eligible company, and does its share structure need to change before 1 July 2028?
- Who should own the bucket company’s shares, and what does changing that cost us now against later?
- Does our trust deed allow every beneficiary we’d want to nominate, and does it need amending before 1 July 2028?
- What would trigger a revocation in our situation, and how would we avoid it?
Your registered tax agent and a lawyer are the people who build what the strategy calls for, from the deed amendments to the election paperwork. If you’d like the strategy itself worked through first, including the tax-efficient investing side of what the bucket company holds, our team can help, and the Federal Budget 2026 overview covers how the rest of the changes fit around it.
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Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.