The key advantage of investment bonds is the tax benefits, particularly for those on moderate to higher rates of personal tax and with income in excess of their lifestyle needs.
It’s only a couple of months until the new super caps rules are imposed for this financial year. In July 2017, the Australian Government’s changes to super meant that transfers from super to pensions are now capped at $1.6 million, previously there had been no limit. Concessional and non-concessional annual contributions limits have also decreased, meaning that if you’re looking to grow wealth in a tax effective way, you may need to look elsewhere.
The most tax effective investment solution outside superannuation
Similar to superannuation, investment bonds offer a tax paid structure where tax is paid within the investment bond, rather than by your client as the investor. The maximum tax paid on the earnings and capital gains within an investment bond is 30%, although this can be even lower after franking credits and tax deductions are applied. This makes them an attractive investment option for high income earners who usually pay up to 47% income tax.
Another key feature of investment bonds is that if the investment is redeemed after 10 years, no personal tax is paid by the investor. This is known as the 10 year advantage.
Why super is not enough anymore
Unlike superannuation, an investment bond has no restrictions around who can invest, how much can be invested or even when money can be accessed. To access funds there is no preservation age, retirement or purpose test required.
If your client leaves their funds in an investment bond for 10 years, you will not only see their wealth grow, the entire proceeds of the bond (original investment, additional contributions and earnings) will be tax free. It isolates bond income from the bond holder’s other income. Your client doesn’t need to include them in their tax return and, should they want to, when they need them, they can be paid as a lump sum.
125% opportunity
Unlike superannuation, investment bonds give much greater flexibility on how much can be contributed to the investment. There are no limits on the amount invested in the first investment year, plus in each subsequent investment year, additional contributions up to 125% of the previous year’s contributions can be made without resetting the 10 year advantage. For tax purposes, these additional contributions benefit from being treated as if they were invested at the same time as the initial contribution.
How can Generation Life help?
For a limited time, Generation Life are offering a special administration fee discount on new investment bonds with account balances over $50,000 (normally only available to balances over $500,000).
Generation Life is an Australian leader in investment bonds. With a choice of 37 investment options and the #1 provider for net funds flows for the last 4 years1, Generation Life’s LifeBuilder is a tax effective, highly accessible investment solution for people who want to grow their wealth outside the superannuation system.
Get more information
To find out more about Generation Life and other uses for investment bonds, visit www.genlife.com.au
Or call our one of our distribution team in your area:
| NSW | VIC/TAS | QLD/NT | WA/SA |
| Joanna Bator | Richard Atkinson | Niall Nugent | Bob Scherini |
| +61 416 940 041 | +61 417 541 897 | +61 428 269 034 | +61 449 960 048 |
| jbator@genlife.com.au | ratkinson@genlife.com.au | nnugent@genlife.com.au | bscherini@genlife.com.au |
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- Source: Strategic Insight Actuaries & Researchers – Sept 2017
Disclaimer
This information has been prepared without taking into account any person’s objectives, financial situation or needs and before acting on it, you should consider its appropriateness. You should obtain the relevant Product Disclosure Statement and consider its contents before making any decision about whether to acquire an Investment Bond. © Generation Life Limited AFSL 225408 ABN 68 092 843 902.
Catherine van der Veen & Lucy Foster
Joint Chief Executive Officer
Generation Life
With a combined 30 years’ experience in executive roles in financial services, Catherine and Lucy are leading the design of financial solutions for different generations of Australians.
