Neil Rogan
With mooted changes to superannuation tax incentives one of the hottest and most contentious tips for the upcoming federal budget, many Australians are facing a real conundrum about supplementing and growing their retirement savings.
“For those planning for retirement and their advisers, uncertainty about super means the search for tax effective structures to supplement super is well and truly on,” said Neil Rogan, General Manager of Centuria Life.
It makes sense for people to be looking out for ways to supplement their super as tax effectively as they can. And we’re seeing a real resurgence in interest in investment bonds as a result,” he explained.
While the specifics of any changes will be unclear until the budget is delivered on 3 May, it is likely the focus will be on four key areas: taxing the contributions of higher earners at a higher rate; making the discount for capital gains tax for super funds less generous; reducing the annual limit on superannuation contributions and/or changing the transition to retirement rules as they relate to concessional tax rates. Higher income earners are likely to be most affected by mooted changes.
“Those on higher incomes may want to consider their options and savings strategies to supplement their super before any changes come into effect,” said Mr Rogan.
Mr Rogan went on to say that investment, or insurance, bonds, are used as a long-term savings vehicles. They offer a range of investment options that individuals can choose to suit their own risk appetite and investment objective.
Income from investments within the bond are taxed at the corporate rate of 30% and re-invested within the bond structure, and investors don’t have to declare the reinvested income in their tax returns. If there are relevant franking credits or tax deductions, these are passed on, so total tax payable may be less than 30%.
There’s no limit to the initial investment and, each year, more funds up to 125% of the amount added in the previous year can be invested. After 10 years, earnings distributed are not declarable and no additional personal income tax or capital gains tax is payable.
“This means that after 10 years, investors have paid a maximum 30% tax on their investment returns, very attractive to investors in the highest tax bracket and currently paying up to 49% tax,” said Mr Rogan.
“When you look at these features, the benefit of using an investment bond to supplement super, especially for high net worth investors, those who’ve reached their cap, or who don’t meet the work test so cannot contribute more at a tax-advantaged rate is clear. So the message is, the news about super may not be as bad as it seems on budget night.”
