A little can go a long way with investment bonds

A little can go a long way with investment bonds

Adnan Glinac

Tax effective investment bonds are staging a strong comeback with Australian investors. Today’s investment bond provides people with a valuable alternative to invest across all the major asset classes. Used to fund major life expenses, complement superannuation or pay for aged care, investment bonds are a tax-effective choice. Let me tell you why.

What is an investment bond?

Investment bonds combine the features of a managed fund with the security of a life insurance policy. Earnings are taxed within the fund at 30 per cent and if you hold the policy for more than ten years earnings are tax-free to withdraw.

What can an investment bond be used for?

An investment bond can work for a wide variety of investors but in my experience, clients use a bond to save for something significant – retirement, home renovation or a lifetime holiday. Investment bonds are also an excellent and flexible solution to transfer wealth.

The Australian Unity Investment Bond has an unique Wealth Preserver feature which allows investors to control the distribution of funds to beneficiaries after their death. Unlike super, beneficiaries can be of any age, non-dependents or a company/trust providing significant estate planning flexibility.

An investment bond doesn’t form part of the deceased’s estate in the event the owner has nominated beneficiaries and the proceeds of an investment bond (on the death of the life insured) pass tax-free to nominated beneficiaries. This is because an investment bond is a life insurance policy.

When is the best time to start an investment bond?

Right now, it’s never too early. You don’t need to start out with much, a little can go a long way if you let the power of compounding returns do the heavy lifting for you.

How is money invested?

Like a managed fund, your money is pooled with other investors. However, the difference is investment bond earnings are taxed within the structure of the investment bond. Australian Unity’s Investment Bond has more than 74 investment options including cash, fixed interest, Australian and international shares, international property securities as well as socially responsible and diversified options.

When can I access the money?

Money is accessible at all times, but investment bonds are designed to be held for ten years in order to generate maximum taxation benefits for the owner. Even if you make a withdrawal within the first ten years you can take advantage of the 30 per cent tax offset to reduce your personal income tax.

What are tax considerations?

Investment bonds use a ‘tax paid’ structure – tax paid on any investment returns are paid within the bond at a rate of 30 per cent. As returns are reinvested during the life of the investment, earnings have no impact on an investor’s personal tax positions while the bond is held. A key attraction of an investment bond is there is no personal tax payable when money is withdrawn from the bond after ten years.


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