00:00Federal budget announcements just killed off the family trust and bucket company strategy.
00:04Let me explain what's been proposed. So here's how things currently work. Your family trust up
00:08the top here, let's say it makes $100 worth of income. You could distribute that out to an
00:13individual person where they'll be taxed at marginal tax rates or your family trust could
00:17distribute that to a bucket company where it would be taxed at 30%. So effectively this $100
00:23of income that the family trust has made pays $30 worth of tax and that money then sits inside of
00:29the company does not have to be distributed out to here. $30 of tax is all it's paid. Under what's
00:34been proposed, the family trust would be taxed itself at 30% on the $100 worth of profit that's
00:40made. So the family trust pays $30. If that distribution is paid down to an individual
00:46down here, they'll get an allowance for that $30 worth of tax that's been paid and then maybe have
00:51a bit of top-up tax to pay if their marginal tax rate is higher than the 30%. However, if
00:57that same
00:57hundred dollars was paid to the company, the family trust pays the $30 but the company does
01:03not get an allowance for that for this tax that the trust has paid. So we end up with $70
01:08paid down
01:09into here. The company still has to pay its 30% tax so it pays another $21. So when you
01:15use the bucket
01:15company strategy, the effective tax rate becomes 51%. $30 worth of tax paid at the family trust level,
01:22another $21 worth of tax paid at the company level, effective tax rate of 51%. Now the tax that's paid
01:29in the company here does create a franking credit and so when the dividend is eventually paid back
01:34out of here, there is an allowance for this 21% but you still got to accept that when the
01:39money hits
01:39the company, you've effectively lost 51% of it. I can't see too many people using the bucket company
01:45anymore.
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