Insurance bonds can act as a viable alternative tax-effective investment structure to superannuation for individuals whose ability to contribute to their retirement savings fund has now been restricted or eliminated as a result of the new super reforms, an investment bond specialist has said.
In particular, Centuria investment bonds division general manager Neil Rogan pointed to individuals affected by the new contributions cap limits as people to whom investment bonds might appeal.
“[An example would be] if you’re likely to receive large capital proceeds that you may have earmarked for superannuation at some point in time. That could be some sort of inheritance that you may have said ‘I’ll use that for a non-concessional contribution’, but if you’ve got more than $1.6 million already in super, you may have trouble putting it into super,” he explained to attendees at the recent Australian Investors Association Conference 2017 held on the Gold Coast.
Rogan also cited people who might be caught out by the changes to division 293 of the Income Tax Assessment Act 1997 whereby individuals with income and concessional contributions exceeding $250,000 are now charged an additional 15 per cent tax as appropriate insurance bond investors.
To both of these ends, Rogan said insurance bonds offered an investment avenue with an unlimited contribution amount with a capped tax rate.
“With an investment bond the tax we pay on behalf of the investor is capped at 30 per cent,” he said.
“What investment bonds can give you is access to your money. It works well with estate planning. We’re paying the tax on behalf of you at a maximum of 30 per cent and there are unlimited contributions that you can make in the first year, but in subsequent years you can only make 125 per cent of the first year’s contribution.
“But if you’re locked out of super, something like this may be worth considering given that there is no limit on the first year’s contributions.”
He added the bond owner can nominate a life insured as well as a beneficiary upon death. The ability also exists to change beneficiaries if the circumstances of the investor changes.
In regard to the mechanics of these instruments, the bond holder has a choice of managed fund options as the assets underpinning the investment and generating the returns with a duration period of 10 years.