How Does A Bucket Company Work?

In a recent webinar, we were asked the questions, “Must the distribution money need to be paid to the Bucket Company? If yes, when?” 

Let’s say, the Bucket Company will receive a distribution this year. You say, “Look, you’re going to receive $30,000 in distribution.” Now, at 30 Virginia, Ryan Perook signed a trust distribution minute, and what happens is it becomes a trust distribution receivable in the Company. Now, you need to pay that cash into the Company because legally, it is the Company’s money. Once you do that trust distribution minute, wherever it goes it is legally that person or that entity’s money. If you don’t pay the money, it essentially means that you owe the money to the Bucket Company or in essence, you borrowed that money in a way by not paying it back. 

There is what we call a ‘Division 7A’ loan that we need to consider. Now, if you don’t pay it before the next financial year and it becomes a Division 7A loan. This  means that you need to make minimum repayments on that loan and also charge commercial interests for that. What happens is, we distribute the money and then if the money is used somewhere else (because that’s the profit in the business, the cash is somewhere) we suggest that the business owner transfers the money into the Bucket. Then you can still borrow that money if you need to invest it somewhere else. It just means that we need to draw up a loan agreement between the Company and wherever that money has gone.

Watch the full webinar, ‘Numbers for non-accountants’ at https://learning.benwalker.com/courses/NFN