It’s only a couple of months until the new super caps rules are imposed for this financial year. In July 2017, the Australian Government’s changes to super meant that transfers from super to pensions are now capped at $1.6 million, previously there had been no limit. Concessional and non-concessional annual contributions limits have also decreased, meaning that if you’re looking to grow your client’s wealth in a tax effective way, you may need to look elsewhere.

The key advantage of investment bonds with Generation Life is the tax benefits, particularly for those on moderate to higher rates of personal tax and with income in excess of their lifestyle needs.

The most tax effective investment solution outside superannuation

Similar to superannuation, investment bonds offer a tax paid structure where tax is paid within the investment bond, rather than by the investor. The maximum tax paid on the earnings and capital gains within an investment bond is 30%, although this can be even lower after franking credits and tax deductions are applied. This makes them an attractive investment option for high income earners who usually pay up to 47% income tax.

Another key feature of investment bonds is that if the investment is redeemed after 10 years, no personal tax is paid by the investor. This is known as the 10 year advantage.

Why super is not enough anymore

Unlike superannuation, an investment bond has no restrictions around who can invest, how much can be invested or even when money can be accessed. To access funds there is no preservation age, retirement or purpose test required.

If you leave your funds in an investment bond for 10 years, you will not only see your wealth grow, the entire proceeds of the bond (original investment, additional contributions and earnings) will be tax free. It isolates bond income from the bond holder’s other income.

You don’t need to include them in your tax return and, should you want to, when you need them, they can be paid to you as a lump sum.

125% opportunity

Unlike superannuation, investment bonds give much greater flexibility on how much your clients can contribute to their investment. There are no limits on the amount they can invest in the first investment year, plus in each subsequent investment year, additional contributions up to 125% of the previous year’s contributions can be made without resetting the 10 year advantage. For tax purposes, these additional contributions benefit from being treated as if they were invested at the same time as the initial contribution.

Find out how Generation Life can help you tax effectively build wealth for your clients.

For a limited time, Generation Life are offering a special administration fee discount on new investment bonds with account balances over $50,000 (normally only available to balances over $500,000).

Generation Life is an Australian leader in investment bonds. With a choice of 37 investment options and #1 provider for net funds flows for the last 4 years¹, Generation Life’s LifeBuilder is a tax effective, highly accessible investment solution for people who want to grow their wealth outside the superannuation system.

1. Source: Strategic Insight Actuaries & Researchers – Sept 2017