What is an investment bond & how can it help me save?

Are you looking for a tax effective way to save for a child/grandchild? With housing affordability at a low and the ever increasing costs of education, wouldn’t you like a way to give your child or grandchild a financial head start?

What is an investment bond & how can it help me save?

An investment bond is a simple and powerful savings tool. It’s a tax effective1 structure that works similar to a wrap account where your money is invested in assets such as cash, shares and property and is managed by professional fund managers.

An investment bond allows your money to work hard for you. If you’re paying more than 30% tax per annum then investing via an investment bond can be tax effective1. Investment earnings in a bond pay a maximum tax rate of 30%. Once you start to generate income over $37,000 p.a. you begin to pay 32.5.% for every dollar earned at this tax rate will continue to increase as your income grows. However, the returns on the investment bond pay tax at the company tax rate or lower, rather than your own individual tax rate. This means your savings can compound tax effectively over time to give your child/grandchild a strong head start.

What are the tax benefits?

  • The maximum tax rate you will pay is 30% however this tax rate can be significantly less than 30% depending on the asset class you invest in due to add backs such as franking credits, making this a very attractive savings tool for high income earners.
  • There is no need to provide a TFN and no annual tax reporting is required unless a withdrawal is made within the first 10 years, making this a simple investment choice.
  • After 10 years, your investment earnings won’t attract any personal tax which is known as the 10 year advantage. Like Super, this is a tax paid structure therefore you have nothing to declare on your annual tax return which means minimal administration requirements.
  • Investment bonds do not produce capital gains or income tax, if no withdrawal is made before the 10 year period therefore could be the ideal structure to have inside your family or discretionary trust to minimise distributions.
  • Upon death all benefits are paid tax free to recipients regardless if they are dependants, non-dependants or minors.

Complete control over your investment

  • You retain ownership and complete control of the investment bond until it is transferred to your nominated beneficiary
  • You can transfer ownership of the bond to any legal entity without triggering a tax event
  • A bond is a non-estate asset, when a beneficiary nomination is made, therefore your beneficiary is guaranteed to receive the money you leave behind. It can also be used in conjunction with or as an alternative to a will or testamentary trust reducing delays and costs in distributing your estate.
  • Investment bonds can be structured to be creditor protected, so in the event of bankruptcy, you will have the funds from a bond to fall back on.
  • There can be a lot of benefits to using investment bonds within your financial plan. If you’d like further information on how you could implement this strategy please don’t hesitate to give our office a call. There’s never been a better time to start saving.

This information is of a general nature only and neither represents nor is intended to be specific advice on any particular matter. Infocus Securities Australia Pty Ltd strongly suggests that no person should act specifically on the basis of the information contained herein but should seek appropriate professional advice based upon their own personal circumstances.

This information has been compiled from sources considered to be reliable, but is not guaranteed.