Not sure if this has been considered. In the AFR today.
Sounds as if it may be beneficial for benefit claims?? However I'm sure the capital should be disclosed to Centrelink, so not really seeing the benefit. ----------------------------------------------------
Investment bonds
Long dismissed because there was little choice in what your money was invested in, investment or insurance bonds are back in favour because earnings don’t need to appear on your tax return and there’s now far greater choice in underlying assets – from bonds to Australian and international shares.
They suit younger people on marginal tax rates above 30 per cent who are already contributing to super, and who want the money for purposes other than retirement.
They also suit executives under 60 who’ve already contributed the maximum concessional (or pre-tax) $25,000 to super, older investors who can no longer contribute to super and those saving for their children’s education.
Earnings from the underlying investments in the bond are excluded from personal income because the bond provider pays the tax at 30 per cent internally – less any deductions and franking credits – leaving nothing to declare on your tax return. To get the full tax benefits, you have to leave your money in the bond for 10 years. After this, there is no tax to pay.
It is possible to get access to the money before 10 years but there will be some tax payable, says BFG’s Haddan.
The bonds can be added to under what is known as the 125 rule, which means investors can contribute up to 125 per cent of their previous year’s contribution without re-starting the 10-year rule period. This is a big bonus for those with large amounts of money earning returns they want to keep off their tax return.
This is why they also work for retirees who can’t contribute any more to super and are entitled to government benefits such as a part pension or healthcare card.
“Money such as an inheritance or the proceeds of a house can be invested in an insurance bond to minimise tax,” Haddan says. “Because it doesn’t get counted as income, it doesn’t impact on government assistance.”
For those making the decision to invest in insurance bonds, the next step is to think about their risk profile and how they want the money invested.
How well the investment does depends on the underlying asset allocation.
Haddan prefers providers with a masterfund approach, where a number of fund managers are selected to look after the investment.
There are several education bonds that carry the same tax advantages, with the sole purpose being to save for a child’s education.
