If your business operates through a family discretionary trust with a corporate beneficiary (commonly known as a “bucket company”), recent developments have significantly changed the playing field.

In June 2026, the High Court delivered a taxpayer-friendly decision in Bendel. Shortly afterwards, the 2026-27 Federal Budget introduced measures that will materially reduce the attractiveness of the traditional bucket company strategy for future years.

Here’s a clear breakdown of what happened, the practical implications, and what smart business owners should consider next.

The Bendel Decision: Welcome Clarity on Unpaid Present Entitlements (UPEs)

A common tax planning approach has been for a discretionary trust to distribute income to a corporate beneficiary on paper. This allows the income to be taxed at the corporate rate (25% or 30%), while the cash remains in the trust to support working capital and operations.

For years, the ATO treated these Unpaid Present Entitlements (UPEs) as loans from the company back to the trust. This often triggered Division 7A consequences unless formal loan agreements were put in place.

In Commissioner of Taxation v Bendel,the High Court ruled that where the trust deed permits funds to be “set aside” on a separate sub-trust, the UPE does not automatically constitute a Division 7A loan. This provides significant relief for many private groups with long-standing historical UPE balances on their balance sheets.

Asset Protection Considerations: The Sub-Trust Trade-Off

While Bendel is positive from a tax perspective, it highlights important asset protection nuances.

Sub-trust arrangements create an equitable interest for the corporate beneficiary. If the bucket company later faces insolvency (for example, due to unpaid tax liabilities on those distributed profits or cross-guarantees), a liquidator may attempt to trace those set-aside funds into assets held by the trust, such as real estate or other investments.

Tracing claims are complex, fact-dependent, and not automatic. However, they generally carry higher risk than a straightforward commercial loan arrangement. Business owners should review how their historical UPEs have been documented and consider whether their overall structure still aligns with both tax efficiency and creditor protection goals.

The 2026-27 Budget: A 30% Minimum Tax on Discretionary Trusts

The bigger long-term shift comes from the Federal Budget. From 1 July 2028, the government will introduce a 30% minimum tax on the taxable income of discretionary trusts (payable at the trustee level).

Individual beneficiaries (other than companies) will generally be able to claim a non-refundable tax credit for tax paid by the trustee. Corporate beneficiaries, however, are excluded from these credits. This creates effective double taxation on income distributed to bucket companies.

Result: For most groups, the traditional tax arbitrage of distributing to a bucket company will lose its mathematical advantage from the 2028 income year onwards.

There are exceptions (e.g., fixed trusts, superannuation funds) and a three-year rollover relief period to assist with restructures. Even so, the rules of the game are clearly changing.

What Should You Do Now?

Review Historical Arrangements

Examine your trust deed and past distribution resolutions to confirm they support the sub-trust mechanics upheld in Bendel. Consider whether cleaning up or formalising existing UPEs makes sense.

Plan Cash Movements Carefully

Physically paying out historical UPEs requires thoughtful capital planning. Use detailed cash flow forecasting to time any transfers without disrupting operations or creating new tax issues. This is where detailed 3-way cash flow forecasting becomes essential to time any transfers without disrupting your daily operations or creating new tax issues.

Model the 2028 Changes

Run scenarios comparing your current structure against alternatives (corporate trading entities, fixed trusts, etc.) under the new 30% minimum tax. Factor in rollover relief where available.

Take a Holistic View

The best outcomes come from balancing tax, asset protection, cash flow, and succession planning. An experienced virtual CFO, or specialist advisor can help you stress-test your structure and implement changes efficiently.

The era of relying heavily on bucket companies for tax minimisation is drawing to a close. Businesses that act proactively (reviewing documentation, modelling impacts, and restructuring where beneficial) will be best positioned.

Disclaimer: The information in this article is for general educational purposes only and does not constitute financial or legal advice. Please consult with a qualified professional before making any business decisions.

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