Trusts are now in the Opposition’s sights – investors urged to consider alternatives


Neil Rogan

“The recent tax hikes on contributions to super have significantly eroded the potential retirement savings of many Australians. Super isn’t necessarily the most tax-effective savings plan out there anymore.”

These are the words of Neil Rogan, a specialist in investment management and General Manager – Investment Bonds Division at Centuria Life following the latest in a range of ever-eroding super changes and the news that Bill Shorten has discretionary (family) trusts in his sights. If these are taxed at 30% as per his policy, there are very few tax-effective investment structures left.

Family trusts, even without a new tax, have some potential drawbacks

Family trusts, even if left untouched, which is far from certain, do not provide the same long term flexibility and simplicity as an investment bond. Family trusts work well to distribute income to family members on lower tax rates, but as soon as children over the age of 18 who are at University and earning less money begin to work, and earn money, all the income distribution from a family trust does is create a tax problem for them. This is never the case with an investment bond.

And creating a trust and maintaining it is complicated, expensive and there are ongoing regulatory obligations.

Company structures just delay, not get rid of tax

Company structures have similar drawbacks, and really all they do is kick the tax liability down the road. They don’t do away with it.

Investment bonds are as tax-effective as super, more tax-effective than trusts or company structures and carry low regulatory risk. Why wouldn’t you consider one.
Investment bonds are not-only just as tax-effective as super, but are more flexible, simpler to administer and can be transferred tax-free to whoever you choose. And they have a low regulatory risk. Unlike super, and potentially family trusts.

“Australians are right to be concerned about Bill Shorten’s recent comments about changing the tax law as it relates to family trusts. With tax hikes and limits on contributions to super already in place, if discretionary trust fall under the Opposition’s hammer, investors will have very few tax-effective savings options left.

“That’s why investment bonds are worth a look now more than ever. They have low regulatory risk and the tax benefits can be at least as good as super, sometimes better. And they are simple, flexible, cheap to set up and you can access your money at any time,” says Mr Rogan.

How investment bonds work:

  • Investment bonds operate like a tax-paid managed fund. Tax is paid at the corporate rate of 30% within the bond structure. Depending on the underlying assets in the bond, effective tax could even be less.
  • Returns are re-invested in the bond and not distributed, and if this is maintained for 10 years, all proceeds are distributed tax free.
  • Additional contributions can be made throughout the life of the bond, up to 120% of the previous year’s contribution.
  • Because an investment bond is in structure an insurance policy with a life insured and a nominated beneficiary, funds can be transferred to a beneficiary tax free, and do not form part of the investor’s estate.
  • When super is passed on to non-dependent adult children, it is taxed at the rate of 17%, an investment bond’s proceeds are tax free.

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