Loan Tip: Bucket Companies and Serviceability

A bucket company is a company that receives distributions from a discretionary trust. They are usually used to cap the tax at 30% on investment income and for asset protection. The company will retain the money, pay tax and then usually invest the money or lend it back to a related party to invest.

Generally, there are 2 ways this could affect serviceability

a) no real effect

Some lenders will not count income that is not received in serviceability. If an individual is apply for the loan and that individual controls the trust and the income of the trust goes to themselves or other co-borrowers, then the income can be used in servicing calculations. But where the trust income goes to a company which is not borrowing under the current loan application then it will not be able to be used.

Bank of QLD is one such lender.


b) Income of the Company is included

Other lenders will take the income into account in servicing where the borrower is the one that controls the entitles by being the trustee/director of the trustee and controlling the bucket company as well by ownership and directorship. So even though an individual may not receive income it can still improve their borrowing capacity.

Westpac is one such lender.

 

Great Tip. Thanks terry.

I am applying with West PAC. Hoping they would take bucket company income into consideration.

 

Westpac are one of the good ones.

 

Hi Terry, will la Trobe financials take bucket company income.

Their servicing calculators says Company Income 1 & Company Income 2.

But they want an accountant letter stating :

1. I am aware the borrower has stated a current taxable income of $[-----------------]

Won't the taxable income be different to trust distributions?

Thank you

 

That is a question for your broker. Sounds like you are using a low doc?

 

Yes, I am planning to use a low doc. They need an accountants letter.

Does taxable income mean all the income from the trust is included in the letter? as taxable income or the amount distributed only to me.

 

It will depend on the wording of the letter