Sometimes a trust may distribute income to a company, rather than an individual. Often this is done because the individual(s) controlling the trust are paying tax on their personal income which is more than 30%. Tax on companies is a flat 30% so tax can be saved this way. These companies are often referred to as 'bucket companies'. Income can accumulate in companies. But trusts must distribute income or the trustee will pay tax at the top marginal tax rate. Companies can pay the tax on the income and can then hold onto the distributions from trusts. This money can then be taken out at a later date by the shareholders at a time which benefits them the most. The company may also further invest the money to compound returns. Care must be taken when setting up companies as ‘bucket companies’ because they could end up holding large sums of money. To reduce risk the shares of the company should not be owned by an individual as if the individual were to become bankrupt their shares would fall into the hands of creditors. The company should also not trade so as to avoid potential litigation. Advice should be sought before setting up a bucket company to make sure it will fall into the definition of beneficiary. Further advice should be sought before taking money from a company - whether by loan, payment into superannuation, wage, dividend or director fees.