Richard Atkinson
Investors who like the idea of investing in a vehicle that allows them to forget about their tax obligations every year, might find the concept of using insurance bonds as a “set and forget” investment quite appealing.
In the case of Imputation bonds, investors can set them up as “set and forget” investments.
During the bonds accumulation phase, no personal taxation or capital gain tax (CGT) liabilities apply. That means investors do not:
- need to keep personal taxation and CGT records,
- have to make annual tax declarations in their tax returns of any of the bond’s investment growth, and
- are not subject to Pay-As-You-Go (PAYG) tax instalment liabilities on the bond’s investment earnings.
Additionally, Imputation Bonds are exempt from Tax File Number notification requirements when investors establish the investment.
However Richard Atkinson of AUSTOCK Life, a leading specialist issuer of insurance bonds warns investors that; “Investors need to be aware that if they make withdrawals within a bond’s first 10 years, then personal tax might potentially apply.”
This could arise under the following scenarios:
- if they withdraw (in full or part) within the bond’s first eight years – they may attract personal tax on the “proportionate” value of the bond’s investment growth component; and
- that “proportionate value” is one-third exempt when a withdrawal is made in the bond’s ninth year, and is two- thirds exempt when a withdrawal is made in the tenth year.
Importantly, after 10 years, an investor’s personal tax deferral becomes permanent – they do not incur any personal tax or CGT whatsoever on an Imputation Bond’s investment growth.
Many refer to this as “set and forget” investing, it requires little effort and you don’t have to constantly manage your portfolios tax reporting.