Specialist investment manager, Centuria, has suggested financial advisers need to look at other tax friendly structures such as investment bonds for their high net worth clients to complement smaller superannuation contributions in light of the 2016 Federal Budget changes.
It is the second firm this week to suggest investment bonds as an add-on option to super contributions, with Lifeplan raising the option earlier this week.
General manager of investment bonds, Neil Rogan, said in light of the proposed reduction of the annual concessional contribution cap from $30,000 or $35,000 for those over 50 to $25,000, Rogan suggested investors could contribute the remaining $10,000 into an investment bond.
“We are by no means suggesting that anyone make a hasty decision about changes to portfolios, but we would encourage them to research the pros and cons of strategies outside of super. Some may be more tax-effective than they think,” Rogan said.
Investment bonds allowed for investment across various asset classes, but like super, tax was paid within the investment bond structure at the corporate tax rate of 30 per cent. Franking credits and tax deductions could also further decrease the effective tax rate.
Rogan also said the reduction in the non-concessional cap from $180,000 per annum to a lifetime limit of $500,000, backdated to 2007 meant investors who had reached that limit needed to look at other avenues.
“There is no limit to what can be contributed in the first year, and additional annual contributions of up to 125 per cent of the previous year’s contribution are allowed,” Rogan said.
The proceeds would be tax-free if the investor wished to withdraw funds after 10 years and advisers could arrange regular withdrawal intervals rather than providing it as a lump sum.
