Welcome to the BETA version of cleardocs.
Switch back to classic
Trusts
Trusts document

Discretionary Trust - bucket company

Use Cleardocs to register a bucket company structure for your existing discretionary trust and create all the documents you need to give effect to tax advantageous trust distributions.

Cleardocs will guide you through these steps:

  • confirm that you have an existing discretionary trust — if you have a Cleardocs deed we can use answers from the earlier order to "pre-populate" your new document;
  • set up your new discretionary trust — to receive distributions from the bucket company by way of dividends;
  • receive the income distribution minutes template for your new discretionary trust;
  • submit the ABN application for the new discretionary trust;
  • register your bucket company;
  • create a Division 7A loan agreement to record a loan from the bucket company to the existing trust: This covers any distributions declared by the existing trust but not paid (i.e. unpaid present entitlements); and
  • create a second Division 7A loan agreement to allow the bucket company to lend monies it received from the existing trust to the beneficiaries of the new discretionary trust.

Before using this product, you will need to ensure that the newly registered company will be an eligible beneficiary of your existing discretionary trust by checking the trust deed — see related FALQ.

    $974.00
    With a Cleardocs deed
    • Cleardocs fee incl GST $462.00
    • ASIC fee $512.00
    $1045.50
    Without a Cleardocs deed
    • Cleardocs fee incl GST $533.50
    • ASIC fee $512.00
Product Benefits
  • Effective year end tax planning solution
  • Our trust deed is Bamford case compliant
  • Extensive online help and local phone support
  • Lodgement of your bucket company registration application with ASIC 24/7 using our electronic lodgement portal
  • Full range of tailored company and discretionary trust set up documents
  • Simple process for ABN, TFN & GST applications
  • Easy to use question interface
  • Copy function for address details
Product Information

What documents are included in the Cleardocs package?

The Cleardocs package includes:

  • electronic bucket company registration and company set up documents;
  • new discretionary trust set up;
  • ABN registration for the new discretionary trust;
  • income distribution minutes template for your new discretionary trust;
  • two Division 7A loan agreements; and
  • an Establishment Kit explaining what to do next.

What is a "bucket company"?

A bucket company is a company that is set up as a beneficiary of an existing discretionary trust that allows a trustee to distribute trust income to it. The shareholder(s) — as trustee(s) of a newly established trust — of the bucket company is then paid dividends in the future and then distributes this income to its beneficiaries.

Why would I use the Bucket Company document package?

The document package will establish a bucket company which will become a beneficiary of a customer's existing discretionary (family) trust. The purpose is to enable distributions to the bucket company where eligible (and preferred) beneficiaries of the trust have already used up their tax rate of 32.5%: by distributing remaining income to the bucket company — this income will be taxed at the corporate rate (currently 30%).

The income will then remain in the bucket company until the bucket company decides to distribute the income to its shareholder(s) (being the trustee of a separate discretionary trust with the same or similar named beneficiaries) by way of franked dividends. This ensures the beneficiaries will not be required to pay tax on the proportion of the dividend on which the company has already paid tax. Ideally, these distributions are made at a later time when the beneficiaries' marginal tax rates are at or below 30%.

Do I need an established trust?

Yes, the operation of the document package assumes that you already have a discretionary trust in place. The bucket company then becomes an eligible beneficiary of that existing discretionary trust. If you do not have a discretionary trust in place, you must first create a discretionary trust.

Cleardocs deed not required for established trust

You can use this product even if your existing discretionary trust does not have a Cleardocs deed. You will need to check the terms of your trust deed to ensure that when the bucket company is registered it will fall within the general class of beneficiaries of your discretionary trust.

Seek legal advice

The Discretionary Trust — bucket company information here should be considered general in nature, and in no way interpreted as legal advice. You must always seek your own independent legal, accounting and financial advice about your particular situation. The summary on this page is for information purposes only.

Frequently Asked Legal Questions

Cleardocs is not a law firm. So as with all the legal material on this site, the answers to these "frequently asked legal questions" are provided by the law firm Maddocks. Cleardocs does not endorse those answers.

Expand All

Who owns the shares in the bucket company?

The document package includes a separate discretionary trust to hold all the shares in the bucket company.

This means that when the bucket company declares and pays a dividend in future years, that dividend is paid to the discretionary trust, and can be paid through to beneficiaries in a tax effective manner.

Can I use my existing discretionary trust to hold shares in the bucket company?

No, you will need a separate discretionary trust. The documentation for the separate discretionary trust is included in the Cleardocs document package. This recommendation is founded in adopting best practice.

A discretionary trust making a distribution to a bucket company, of which the same discretionary trust is the sole shareholder (and from which it will therefore receive the distributions) looks artificial.

Why does the product include a discretionary trust deed set-up document?

This document creates a new discretionary trust, the trustee of which will become the only shareholder of the bucket company. The named beneficiaries of this new discretionary trust will be the same named beneficiaries of your existing discretionary trust. This will enable the bucket company to later distribute any income it earns as a dividend to the new discretionary trust (which in turn distributes it to the beneficiaries). The recommendation to use a separate discretionary trust as the sole shareholder of your bucket company is founded in adopting best practice.

Why can't the beneficiaries of my existing trust be shareholders of the Bucket Company?

The beneficiaries of your existing discretionary trust can be the shareholders of your bucket company, however this would defeat the purposes of setting up the bucket company.

If the beneficiaries of your existing discretionary trust were also the shareholders of the bucket company – then any dividends declared by the bucket company must be distributed to the beneficiaries as shareholders in proportion to their shareholding. In this instance, the bucket company would be required to distribute the dividends to the beneficiaries, as shareholders, who will each have different marginal tax rates.

In comparison, using a second discretionary trust as a shareholder of the bucket company will give you flexibility as to which beneficiary to ultimately distribute the funds to and in what proportion e.g. making the largest distribution to an individual with the lowest marginal tax rate.

When completing the discretionary trust deed set up, should I use a corporate trustee or an individual trustee?

The primary role of the trustee of the new discretionary trust you create will be the passive receipt of dividends from the bucket company (as it will be the sole shareholder of the bucket company). Accordingly, the preference would be to use an individual(s) as trustee rather than a corporate trustee. If you wish to use a corporate trustee (and you do not already have a company which you can use), you will need to incorporate the company before you establish the new discretionary trust and before you establish the bucket company.

Will the bucket company be able to receive distributions from my existing discretionary trust?

Usually yes. You need to correctly establish the bucket company so it is an eligible beneficiary of the existing discretionary trust.

You need to carefully review that existing discretionary trust's deed to see how a company qualifies as an eligible beneficiary.

For example:

The deed may include in the classes of eligible beneficiaries "Companies ... of which any of the beneficiaries otherwise mentioned in this schedule is a shareholder or director." This means a company of which a named beneficiary is a director would qualify;

The deed may contain a restriction on classes of eligible beneficiaries — for example if the deed restricts beneficiaries to blood relatives. Cleardocs' direct lineal descendants trust does this, meaning a bucket company could only be specifically named as an eligible beneficiary by the trustee, and only if the bucket company had a ‘sufficient connection’ to the trust’s existing beneficiaries.

What if I do not have an existing discretionary trust deed of any kind?

In that case you must first establish the discretionary trust which will have the bucket company as a beneficiary, then establish the discretionary trust which will own the shares in the bucket company, before you can establish the bucket company using this document package.

Cleardocs advises against using the direct lineal descendants version of its Discretionary Trust — excluded beneficiaries document package when setting up your trust(s) (ordering this product will present difficulties in adding the bucket company as a beneficiary).

Why do I need Division 7A loan agreements?

There are two instances where Division 7A loans will likely be required to manage unwanted tax outcomes:

  • firstly, where the trustee of your existing discretionary trust decides to distribute income to the bucket company but is unable to pay the income to the bucket company at the time of making the decision (First Division 7A Loan): the ATO in Taxation Ruling 2010/3 considers that the bucket company has lent this money to the trustee and that such arrangement should be documented by way of a Division 7A loan agreement; and
  • secondly, where the bucket company receives the distribution of income from the trustee of your existing discretionary trust and the bucket company then lends the money to its 'associates' (that is, beneficiaries of either trust) (Second Division 7A loan).

What are the tax implications of the trustee making a valid distribution of trust income to the bucket company?

The income which the bucket company receives by way of a valid trust distribution, will be taxed at the existing corporate tax rate in the hands of the bucket company.

Thereafter, the income of the bucket company can be ultimately distributed to the beneficiaries of the customer's discretionary trust (by way of franked dividends, i.e. the beneficiaries will not be required to pay tax on the proportion of the dividend which the company has already paid tax). These distributions are made at a later time, ideally when the beneficiaries' marginal tax rates are at or below 30%.

Can a person or entity be the trustee of more than one of the discretionary trusts used in this product?

While you can be the trustee of more than one trust, our lawyers at Maddocks do not recommend it as it may lead to confusion and/or a conflict of interest for the trustee, who will have a separate set of responsibilities in relation to each trust.


how to use cleardocs
  • A simple and fast process:

    • process-icn1

      Register as a User - it's free;

    • process-icn1

      Select your required document;

    • process-icn1

      Answer the online interface questions;

      i. If you are unable to complete the question interface, you can save the document and return to it later.

      ii. We provide help-text beside many questions. To see the help-text, simply click the beside the question. Common questions and answers relating to our document packages can also be found at our legal FAQ's.

    • process-icn1

      Pay by credit card
      (Visa or Mastercard);

    • process-icn1

      Receive, download and store the document; and

    • process-icn1

      If printing and binding is ordered, confirm.

    For any questions or assistance in this process, we have local helpline support. Call us on 1300 307 343.

Our entire document suite on demand

With a wide range of documents, Cleardocs is the most comprehensive document suite available - all in one place. You can be confident that our documents are current and compliant, with compliance upgrades to popular documents just a few clicks away.