Starting a business is an exciting venture, but as an Australian business owner, you may also want to consider how to structure your operations for tax efficiency and asset protection. One strategy that has gained popularity is the use of a “bucket company.” This article will provide you with a comprehensive step-by-step guide on how to set up a bucket company, courtesy of Ample Finance.
What is a Bucket Company?
A bucket company is typically a corporate entity set up to receive income distributions from a family trust. It can be particularly beneficial for family-run businesses as it allows income to be split among family members, thereby reducing the overall tax burden. By funneling surplus income into a bucket company, business owners can take advantage of corporate tax rates and reinvest profits more flexibly.
Step 1: Seek Professional Advice
Before making any decisions, it’s crucial to discuss your business structure with a qualified accountant or financial advisor. At Ample Finance, Our team specializes in tax planning and can tailor strategies that align with your business goals. This initial consultation will help you understand whether a bucket company is the right choice for your circumstances.
Step 2: Choose a Company Name
Select a unique name for your bucket company that complies with Australian Securities and Investments Commission (ASIC) guidelines. The name must not be identical or similar to existing companies, and it should ideally reflect your business’s service or ethos. You can verify name availability on the ASIC website.
Step 3: Decide on Company Structure
Consider the ownership structure of your bucket company. You may choose to have a single director and shareholder, or you can opt for multiple directors and shareholders, depending on your family’s situation. Ensure that the roles and responsibilities are well understood among family members, as this will help streamline future operations.
Step 4: Register Your Company
To officially establish your bucket company, you need to register it with ASIC. Prepare the necessary documents, including:
- Company registration application (Form 201)
- Consent forms from directors and shareholders
- A constitution (if you choose to adopt one)
Once registered, you will receive an Australian Company Number (ACN), which is essential for your company’s operations.
Step 5: Set Up a Company Bank Account
Open a separate bank account in your company’s name. This account will be used for all business transactions, ensuring that your company’s finances are distinct from your personal finances. It will help in maintaining proper accounting and make tax time much simpler.
Step 6: Register for Necessary Taxes
Register your company for various taxes, including:
- Goods and Services Tax (GST) if your turnover exceeds $75,000
- Pay As You Go (PAYG) withholding if you employ staff
- Corporate tax obligations
Ensure that you understand your responsibilities concerning reporting and payment deadlines.
Step 7: Establish a Family Trust
Typically, a bucket company operates in conjunction with a family trust. Consult with your financial advisor to set up an appropriate trust structure that allows for income distribution to the bucket company. The family trust should have a trustee and beneficiaries, and it must comply with Australian trust law.
Step 8: Implement Accounting Software
Invest in quality accounting software tailored for Australian businesses. This tool will help you manage invoicing, expenses, and tax obligations efficiently. Alternatively, consider engaging Ample Finance for ongoing accounting services, ensuring that your financial record-keeping remains accurate and up to date.
Step 9: Monitor Cash Flow and Distributions
Once your bucket company is operating, regularly monitor its cash flow and income distributions. Work with your accountant to establish a plan for how income is allocated between the family trust and the bucket company. This will help ensure that you are optimally utilizing tax benefits.
Step 10: Maintain Compliance
Your bucket company will need to adhere to ongoing compliance requirements set out by ASIC, including:
- Annual company statements
- Meeting financial reporting obligations
- Keeping proper records and maintaining minutes for board meetings
Failing to comply can lead to penalties, so it’s vital to stay on top of these obligations.
Conclusion
Setting up a bucket company can be an effective way to minimize tax liability and protect assets for families running businesses in Australia. By following this step-by-step guide and leveraging the expertise of Ample Finance, you can lay the groundwork for a financially sound business structure. Our team is committed to helping Australian business owners navigate complex financial landscapes, ensuring your business thrives both now and in the future.
For further assistance or inquiries on setting up your bucket company, don’t hesitate to contact Ample Finance. We’re here to help you succeed!
