Part four of Nexia Australia’s tax reform series explores whether bucket companies will remain an effective wealth planning tool under the proposed trust taxation reforms.
As discussion around the proposed tax reform continues, one question is being asked frequently by business owners and family groups:
“Can I still use a bucket company?”
The short answer is yes.
However, the role of bucket companies may change significantly under the proposed reforms, creating both challenges and planning opportunities.
For many years, bucket companies have been used to manage tax outcomes, retain profits and support long-term wealth creation. While the proposed reforms do not necessarily remove these benefits, they may prompt many families to review whether their current structure remains fit for purpose.
The key message is that bucket companies are unlikely to disappear, but the strategies surrounding them may need to evolve.
What is a bucket company?
The proposed reforms have prompted many families to revisit structures that may have been in place for decades and consider whether they will continue to achieve the desired outcomes for the future.
A bucket company is a company that is commonly used as a beneficiary of a discretionary family trust.
Where income is generated within the trust, some of that income may be distributed to the bucket company rather than individual beneficiaries. The company then pays tax at the corporate tax rate and can retain those after-tax profits for future investment or distribution.
Historically, this approach has been attractive where family members did not need all of the trust income personally or where additional flexibility was desired in managing tax outcomes across a family group.
For many business owners, bucket companies have become a core component of their wealth creation structure.
Why are bucket companies being discussed now?
As a result, many investors are questioning whether the traditional bucket company strategy will continue to deliver the same benefits in the future.
The answer is not entirely straightforward.
While some existing strategies may become less effective, new planning opportunities may emerge, particularly during the transition period leading up to the proposed commencement of the reforms.
For this reason, many advisors are encouraging clients to review their structures well before any implementation dates arrive.
The good news: bucket companies are not disappearing
One misconception we are seeing is that bucket companies will become completely unusable under the proposed reforms.
That is not currently the case.
In October 2026, draft legislation for the proposed 30% minimum tax on discretionary trusts has been introduced into parliament.
The new capital gains tax (CGT) reforms (which apply from 1 July 2027) and the proposed reforms affecting discretionary trusts could significantly change how trusts and trust distributions are taxed in the future.
While many of the details are still evolving, bucket companies are not currently disappearing under the proposed rules. Instead, many families may need to consider how they use them and whether their broader structure remains appropriate.
You can read more about the proposed reforms on our tax reform hub.
The legislative detail continues to evolve. In October 2026, draft legislation for the proposed 30% minimum tax on discretionary trusts has been introduced into Parliament.
Under the draft rules, bucket companies are not disappearing.
Potential benefits of using a bucket company may include:
- Retaining profits within a company structure
- Managing future distributions of income
- Accessing franking credits
- Supporting succession and estate planning objectives
- Creating flexibility for future restructuring opportunities
For some investors, the transitional period may provide an opportunity to revisit structures that have not been reviewed for many years.
The challenge: future effectiveness may depend on structural changes
While bucket companies remain relevant, the effectiveness of existing arrangements may depend on how family groups respond to the proposed reforms.
Many structures were established based on tax rules that have existed for decades. If those rules change, simply leaving everything untouched may not deliver the best outcome.
Questions that may need to be considered include:
- Should the trust continue to operate in its current form?
- Are fixed trust arrangements more appropriate in some circumstances?
- How should future trust distributions be managed?
- Does the current ownership structure still align with the family’s long-term objectives?
- Is the current ownership structure consistent with the estate plan objectives of parents or grandparents?
- Are there opportunities to restructure before the new rules commence?
The answers will differ from one family group to another.
This is one of the reasons why modelling and scenario analysis are becoming increasingly important.
This does not mean every structure needs to change. However, it does mean families should understand where opportunities or risks may exist before the reforms commence.
What about franking credits?
One area receiving growing attention is the interaction between bucket companies and franking credits.
Where profits have been retained within a bucket company over many years, those profits may carry valuable franking credits that can form an important part of a family’s future wealth strategy.
The proposed reforms may create opportunities for some families to review how those franking credits are ultimately distributed and utilised.
For some groups, this may become a more important planning consideration than it has been historically.
However, the right approach will depend heavily on individual circumstances, asset ownership structures and future family objectives.
Can the shares in the bucket company be owned by family members?
Another common question is:
“Can we continue to use a bucket company if the company shares are held directly by family members?”
Potentially yes, but this is an area where careful advice becomes particularly important.
Ownership of a bucket company may become increasingly important under the proposed reforms, particularly where future elections or trust concessions are being considered.
For example, the ownership of the bucket company can have significant tax implications if from 1 July 2028, a trustee makes an “Excluded Election Trust” (EET) election. Two very different situations may arise where:
- From 1 July 2028, if the EET is made, and the shares owned by family members in the bucket company have no material discretionary elements capable of significantly affecting the rights or interests of the company’s members, then tax effective distributions may be made.
- However, from 1 July 2027, if the EET is made and the shares owned by family members in the bucket company have material discretionary elements capable of significantly affecting the rights or interests of the company’s members, then significant adverse income tax implications may arise to distributions to corporate beneficiaries and to the trustee (including automatic revocation of the EET election).
Other non-tax implications of the ownership of a bucket company include:
- Asset protection
- Succession planning
- Estate planning outcomes
- Access to future franking credits
- Control of family wealth
- Long-term taxation outcomes
What may seem like a simple ownership decision can have consequences many years into the future.
As a result, it is important to consider not only whether a bucket company remains appropriate, but also who should ultimately own and control that company.
The real question is whether your structure is still fit for purpose
One of the most important observations we are making is that many clients are asking the wrong question.
Rather than asking:
“Can I still use a bucket company?”
The better question may be:
“Does my existing trust and bucket company structure still achieve what I need it to achieve under the proposed rules?”
For some families, the answer will be yes.
For others, there may be opportunities to improve outcomes through proactive planning before the reforms take effect.
Either way, understanding your current structure before change occurs is likely to provide more options than waiting until after the rules are implemented.
Why now may be the best time to review your structure
The proposed reforms do not necessarily signal the end of bucket company strategies.
What they do signal is the need for review.
Family groups who have accumulated significant assets, retained profits within bucket companies or developed complex trust structures may benefit from understanding how the proposed rules could affect their future planning opportunities.
In many cases, the most valuable planning may occur before any legislative changes commence.
How Nexia can help
If you currently operate through a trust with a bucket company, now may be the ideal time to review whether your structure remains appropriate under the proposed reforms.
Understanding how the proposed changes could affect your family wealth and future planning opportunities may help you identify options that are easier to implement before legislative changes take effect.
A proactive review today could help protect future wealth and provide greater flexibility for tomorrow.
Speak with your local Nexia Advisor to review your current arrangements and determine whether your trust and bucket company structure remains fit for purpose under the proposed reforms.
Important: This article is based on legislation and draft rules as proposed at the time of writing. Future government policy, legislation and the outcome of the next Federal Election may result in changes. The information provided is general in nature and should not be relied upon as a substitute for professional advice. Please seek advice tailored to your individual circumstances.
