Understanding the Essentials of Investment Bonds: Part 2

Investment bonds are proving to be extremely popular with many parents, business owners, and pre-retirees in Australia. 

If you know nothing about investment bonds, check out Part 1 of our Investment Bonds Series.

Otherwise, keep reading to get into the finer specifics of investment bonds including how they may affect your personal tax return!

The Pros and Cons of Investment Bonds

Investment bonds offer a distinct edge over other types of investment structures. This can be beneficial if you are looking for a tax-effective investment option outside of your super or greater flexibility with your investments.

However, they may not be suitable for all types of investors. Consider the pros and cons before deciding whether investment bonds are right for you:

Advantages

• You can withdraw money at any time
• Unless you make a withdrawal in the first 10 years, growth/income generated does not need to be reported in your tax return
• If you have a large salary, this can be a tax-effective option
• There are a variety of investment choices 
• It can be an excellent method to save for the future of your children or grandchildren
• The certainty that the money will be left to a particular individual tax-free
• People who are unable to contribute to superannuation may find this helpful

Disadvantages

• Taxes of up to 30% are levied on all income and capital gains
• If money is removed within ten years, part or all gains are taxed at your income tax rate
• Fees are levied, and they vary based on the service and the investing choices you decide on
• You can only contribute 125% of the previous years’ contributions
• Some investment bonds have a minimum balance that must be maintained

What Are the Tax Implications of Investment Bonds?

Because investment bonds are “tax paid” investments, where income is taxed at 30% along the way, you will not have to pay extra on the capital gains earned after ten years.

If you pay much more than 30% personal income tax, an investment bond may be a tax-effective way for you to invest. 

However, if you make a withdrawal during the first ten years, some (or all) of the profit you earn may be taxed at your tax rate, in addition to the tax paid inside the bond.

However, you will receive a 30% tax offset to decrease the tax you must pay. Keep in mind that if the amount you contribute to the investment bond in a given year exceeds 125% of what you contributed the previous year, the 10-year term will be reset.

Do You Want to Explore Investment Bond Opportunities with a Financial Planner?

Before determining if an investment bond is appropriate for you, get the advice of an experienced financial advisor.

If you want to learn more about investment bonds or need help with investment bonds on the Gold Coast, Cambio Group’s financial planners can help. We help our clients make smart financial decisions that will benefit them and their families in the future.

Contact us today to book your complimentary, initial appointment with our Wealth Management advisors.

DISCLAIMER: The information (including taxation) in this website does not consider your personal circumstances and is of a general nature only – unless otherwise stated. You should not act on the information provided without first obtaining professional advice specific to your circumstances.