Planning Strategies
Using Insurance Bonds
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For quick reference to topics, please click on headings below.
Superannuation and Insurance Bonds
Our Products
Comparing Superannuation and
Insurance Bonds
Imputation Bonds
Estate Planning and Insurance Bonds
Tax-Paid Term Deposits
Life Events and Insurance Bonds
ChildBuilder
The Bonds Custodian Trust
Investment Menu
Foreign Investors and Insurance Bonds
“Annuity-Like” Streams and
Insurance Bonds
About the Insurance Bond
Tax Framework
Types of Investment Plans
Best Suited Investors
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Superannuation and Insurance Bonds
3
A
Main Menu
C
B
Financial Planning Issue
Financial Planning Issue
Financial Planning Issue
Superannuation
Contribution caps.
Client requires a tax-effective investment
but wants early accessibility.
Dealing with redundancies and golden
handshakes.
Alternative/Strategy
Invest in super above contribution caps.
Alternative/Strategy
OR
Invest outside super (e.g. managed funds
or direct investments).
Invest outside super.
Potential Limitation(s) With
Alternatives
Potential Limitation(s) With
Alternatives
Earnings taxed at personal marginal tax
rate (MTR) and potential tax bracket
creep.
If invest above contribution caps:
Various penalties can apply on excess
(e.g. MTR/30% contribution tax).
Austock Life Solution
• Imputation Bond can cap tax rate at
maximum 30%.
• No preservation age rules, easy
access to funds.
Bond Tax
Framework
Alternative/Strategy
Invest outside super.
OR
Invest into super.
Current age and “work test” restrictions.
If invest outside super: Earnings taxed at
MTR and potential tax bracket creep.
Potential Limitation(s) With
Alternatives
If invest outside super: Earnings taxed at
MTR and potential tax bracket creep.
If invest into super: Subject to nonconcessional caps with penalties for
excess contributions.
ETP roll-overs no longer possible.
Austock Life Solution
• Invest excess (above contributions
cap) into Bond (next best tax
advantaged structure).
• No contribution caps.
• No age or “work test” restrictions.
Austock Life Solution
Invest ETP into Bond and drip (subject
to contribution caps) permitted amounts
into super over time.
Insurance Bonds
and Superannuation
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Superannuation and Insurance Bonds
4
D
Main Menu
E
F
Financial Planning Issue
Financial Planning Issue
Financial Planning Issue
Re-investment of excess pension into
super - prevented or limited.
Punitive tax on super death benefits
distributed to non-dependants.
Gearing and loans.
Alternative/Strategy
Alternative/Strategy
Invest outside super (e.g. managed funds
or direct investment).
Invest outside super.
Potential Limitation(s) With
Alternatives
Invest into super.
•
Earnings taxed at MTR and potential
tax bracket creep.
Potential Limitation(s) With
Alternatives
•
Income may infringe thresholds for
age pension income test, senior’s
health card, means-tested residential
aged or home care etc.
If invest outside super: Earnings taxed at
MTR and potential tax bracket creep.
Alternative/Strategy
OR
Limited recourse loans for SMSF.
Potential Limitation(s) With
Alternatives
•
Legal and statutory obligations for
trustees of SMSF.
•
May require guarantees and
independent valuations.
•
Cost of set-up and running the
required underlying trust structure.
•
Interest cost tax deductions/losses
quarantined in underlying trust.
Austock Life Solution
If invest into super: Distribution of
taxable component death benefits to
non-dependants can attract exit tax and
Medicare levy (currently up to 17%).
•
Bond can cap tax rate at maximum
30%.
Austock Life Solution
Austock Life Solution
Austock’s Bonds Custodian Trust
can address “income threshold”
sensitive concerns.
Bond’s death proceeds are tax-free
distributions to estate and/or nominated
beneficiaries.
•
•
Bond can be used as security for a
loan.
•
Tax deductible if used for business/
assessable income purposes.
About the Bonds
Custodian Trust
Loan and Gearing
Austock Life’s Total
Focus – Insurance Bonds
and Working With
Advisers
As we enter this era of major
change to Super, we take
satisfaction that our Imputation
Bond master insurance bond
platform (including ChildBuilder)
is the market leading product,
and over the past 12 years has
been central to reinvigorating the
Insurance Bond sector.
More so than ever, our three
pronged strategy of 1) a single
minded focus on Insurance
Bonds, 2) a national BDM team of
technically adept Insurance Bond
specialists, and 3) working with
Financial Advisers on strategybased applications for Bonds will be at the forefront of The Big
Superannuation Re-think.
Case Study
Product
Quick
Facts
More
about
Superannuation
and Insurance Bonds
5
Imputation Bonds (like superannuation)
are long-term, Tax-Paid investments and
both types of tax/investment structure
can also make Tax-Free distributions.
As such, for some higher taxed investors
an Imputation Bond can be an attractive,
accessible alternative to non-compulsory
superannuation. For others, they might
be a useful investment to supplement
superannuation in retirement.
Whilst there is a considerable “aftertax” performance trade-off favouring
superannuation’s lower taxed environment,
Imputation Bonds do not have
superannuation’s restrictions, such as:
•
Preservation Age restrictions. (An
investor does not have to wait until
age 55 to 60 to make withdrawals
from a Bond);
•
contribution caps limits. (Imputation
Bonds do not have aged based/
work-test contribution restrictions);
or
•
restrictions that generally apply
to using superannuation as loan
security for gearing strategies. Such
restrictions do not apply to Bonds.
Contribution Limits Strategy
For investors who are unable to make
superannuation contributions, or
perhaps restricted due to contribution
caps, Imputation Bonds offer a valuable
alternative, tax-effective investment
structure.
Investors in this situation could, for
instance, invest in an Imputation Bond
– say over their last 5 or 10 working
years – and then during their pre-age 65
retirement period make structured drawdowns against their Bond, whilst leaving
their superannuation intact.
By doing this, any deferred tax
assessability on the Bond’s growth
can be structured over a succession of
the early years of retirement, where an
investor may be able to best utilise its
imputed tax benefits in the form of 30%
Tax Offset claims.
Better still, if an investor has held their
Bond beyond 10 years, then any drawdowns in their hands would be free of
any personal income tax or CGT.
Main Menu
Redundancies and Golden
Handshakes
Amongst the many superannuation
regime changes made in recent years,
was the ending of long-standing
benefits of rolling over employment
termination payment (ETP) monies into
superannuation. These were made
taxable outside superannuation as
ordinary investment monies.
Insurance bonds (e.g. Imputation
Bonds) are for higher taxed investors
the next best comprehensive tax/
product structure after superannuation,
and can represent an attractive
repository investment vehicle for exiting
superannuation pension mode monies.
Additionally, the Bond’s estate planning
advantages as against superannuation
add to this attraction.
These changes have opened scope to
use insurance bonds (and Imputation
Bonds) as a type of post “roll-over”
vehicle. For instance, someone receiving
a redundancy in early or mid working life
may be advantaged by investing their
ETP monies into an Imputation Bond and
then over a period flexibily drip feeding
these into the superannuation system.
Overcoming Superannuation’s Estate
Planning Limitations
Funds Exiting Superannuation
Pensions
By contrast, Imputation Bond
distributions due to death are simply TaxFree to all recipients regardless of who
they are or the state of their dependency.
Monies coming out of the
superannuation system via annuities and
pensions often cannot be re-contributed
back into superannuation. Investors
aged 65 to 74 must satisfy the worktest, and generally those over age 75
cannot make voluntary superannuation
contributions.
These “exited” monies can for example
accumulate in bank accounts and may
cause annual income tax problems,
or perhaps have unfavourable impact
on qualification thresholds, say for a
Commonwealth Seniors Health Card.
Superannuation is favoured by a low
15% ongoing fund tax. However, as
against an Imputation Bond, it can suffer
an additional 17% exit tax for “death”
distributions to non-dependants and
importantly, including non-dependant
children.
Back to Strategies
Comparing Insurance
Bonds and Superannuation
Comparing Superannuation and Insurance Bonds
6
S UPE R A NNUAT ION
Main Menu
IN S UR A N C E B ONDS
Tax-Paid
(Fund/Portfolio Level)
Accumulation - 10% (Capital Gains)
Tax-Free
Access & Distributions
Starts at Preservation Age (55 to 60)
Starts at 10 years
& Death Distributions (Dependants only)
& Death Distributions (To Anyone)
Early Access
Contribution Caps
- 15% (Income)
Difficult Access before Preservation
(Hardship Releases)
Generally sub 30%
Easy Access before 10 years Tax Deferral/30% Offset/Fractional Tax
(Hardship & Disability possible)
Concessional Contribution Caps
Uncapped for Lump Sums
Non-Concessional (New Lifetime) Caps
Increasing caps for Add-Ons (125% Rule)
Yes – By Bond Transfer
Changing Ownership
No
Tax Reporting
No – except under 60, pension mode & nondependant distributions
No – except for withdrawals within 10 years
Menu Switching – No CGT
Yes - Internal to product structure
Yes - Internal to product structure
Borrowing Against
No - Generally prohibited (SMSF – LRBA )
Yes - Investment & business loans are
deductible
Tax Framework
Very political, changing & uncertain
(No CGT/Stamp Duty)
Certain & stable
Back to Strategies
Insurance Bonds
and Superannuation
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Estate Planning and Insurance Bonds
7
G
Main Menu
H
Financial Planning Issue
Financial Planning Issue
•
Distributing of wealth on death.
Intergenerational wealth transfer.
•
Making charitable bequests.
Alternative/Strategy
Wills
Potential Limitation(s) With
Alternatives
•
•
•
Difficult to cater for blended families
and split families.
Open to challenge from
beneficiaries.
Can’t achieve lasting or
intergenerational transfer without a
Testamentary Trust.
Austock Life Solution
•
“Will-like” Bond nomination
- distributes directly (and
confidentially) to beneficiaries
without probate, delays or costs.
•
Nominations - “non-estate”
protected, unchallengeble
inheritances.
•
Can make part nominees/part
deceased’s legal estate distributions.
•
Choice of “joint survivorship” or
“down-the-line” succession rules.
Alternative/Strategy
Testamentary trust.
Potential Limitation(s) With
Alternatives
•
•
Can be complicated and expensive
to set up and run.
Difficult to cater for blended families
and split families.
Austock Life Solution
•
Use Childbuilder for targeted
intergenerational transfers to children
and grandchildren.
•
Structure Imputation Bond to have
pre-set future transfers to next
generation.
Case Study
Intergenerational
Wealth Trasfer
Insurance Bonds Avoid Bequest Trap – suitable
for blended families that have separate estate
planning needs
An often overlooked investment structure can give parents in blended
families certainty that their nominated beneficiaries will receive their
bequest without challenges from other family members.
An Austock Life Imputation Bond can be structured as a non-estate
asset to bypass the deceased’s Will and not be subjected to the usual
delays associated with probate.
The Imputation Bond owner can make binding nominations which may
be different to their current family arrangement. And where a parent is
leaving money to a child from another relationship, they can also, as the
bond owner, make withdrawals at any time for the benefit of that child.
Case Study
More about Estate Planning and Insurance Bonds
8
Estate Planning and Intergenerational
Wealth Transfers
Imputation Bonds have features that
investors can use in conjunction with,
or as an alternative to, conventional
estate planning tools - such as a Will (for
immediate post-death bequests) or a
testamentary trust (for future bequests
and for making intergenerational
transfers).
Basic Estate Planning - Joint
Ownership
Tax-Free Estate and
Beneficiary Distributions
A key aspect of an Imputation
Bond’s usefulness in estate
planning is that when a Bond
matures due to the death of its Life
Insured (whether pre or post 10
years) all of its proceeds are TaxFree distributions to:
•
the investor (including as a joint
Bond Owner) where the investor
Bond has been established with
some other person(s) as its Life/
joint Lives Insured;
•
Nominated Beneficiaries entitled
to the Imputation Bond’s
proceeds (see below); or
Imputation Bonds can be jointly owned
by multiple Bond Owners.
This means that if an investor as a joint
Bond Owner dies during the Imputation
Bond’s selected Investment Term (1 to
99 years), the Bond’s ownership will
automatically pass to the surviving joint
Bond Owner(s). Typically, this will be
its ownership passing to a spouse and
importantly, this occurs without having
to go through Will and legal estate
procedures.
•
the investor Will and legal estate
recipients, where has not used
or have only partially used the
Bond’s Nomination feature.
Bond Nominations – “Will-Like” NonEstate Arrangements
The Imputation Bond’s Nomination feature
draws upon various facets and legal
mechanisms usually found in basic Wills.
As such, leaving bequests by making a
Bond Nomination can achieve “Will-like”
estate planning outcomes and convey
tax-effective and confidential inheritances
outside Wills and legal estates.
Main Menu
Advantages of Bond Nominations
•
Besides being able to make Tax-Free
distributions to Nominated Beneficiaries,
the advantages of making a Bond
Nomination are:
solving potential conflicts and
inequities between children and
grandchildren that might be complex
and difficult to handle under a Will; and
•
privately meeting moral obligations
to a loyal employee or trusted friend.
•
•
the Bond’s Investment Benefits pass
as “non-estate” assets outside of a
Will and legal estate - and without
the delay and cost of obtaining
probate or administration of the
estate; and
its maturity proceeds pass directly
(and privately) to the Bond’s
Nominated Beneficiaries and as
such this can avert possible risks
of estate claims, including for family
provision or in testator’s family
maintenance challenges.
Simplifying Complex Wills and Estates
A Bond Nomination being outside the
deceased’s Will and legal estate (and also
able to be made in secret) opens strategies
to use a Nomination in conjunction with a
Will, or as an alternative estate planning
arrangement. Using Bond Nominations
may be useful for:
•
providing for blended families to
financially provide for children of
previous relationships, for a new
spouse’s children or for estranged
children - whilst using a conventional
Will to provide for a current spouse
and children;
Who can be Nominated Beneficiaries
Investors can flexibly specify a range of
Nominated Beneficiaries covering:
•
individual persons – with
percentage entitlements set by the
investor to divide for their Bond’s
future value and with survivorship
arrangements or “down-the-line”
succession applying between
multiple Nominated Beneficiaries;
and
•
legal entities – such as companies
and incorporated associations –
thus, a Bond Nomination can be
used for making charitable bequests.
More Estate
Planning Strategies
Back to Strategies
More about Estate Planning and Insurance Bonds (continued)
9
How to Make a Nomination
An Imputation Bond Owner (provided
he or she is also specified as the Life
Insured and over age 16) can nominate
one or more Nominated Beneficiaries
to become entitled to the Bond’s
Investment Benefits in the event of the
Bond’s maturity due to death of the
Bond Owner.
An investor can revoke their Bond
Nomination at any time. They can also
change their Nominated Beneficiaries
and the percentage allocations in favour
of them.
What happens if an investor
do not make a Bond
Nomination?
In this situation, when the Imputation
Bond matures due to the investor’s
death as its Life Insured, we will pay
its proceeds to the legal estate via its
Personal Legal Representative.
Nominated Beneficiaries Survivorship and Succession
Joint Survivorship
An Imputation Bond Nomination can be
set to work under joint survivorship rules
when multiple Nominated Beneficiaries
are appointed.
Thus, if say one beneficiary predeceases the others, then that deceased
beneficiary’s specified share (i.e. a
percentage) under the Nomination will
be automatically re-distributed across
the remaining Nominated Beneficiaries.
This re-distribution is made on a prorata basis according to the surviving
Nominated Beneficiaries’ proportional
entitlements.
This survivorship outcome known as
“joint survivorship” removes the need
for the investor to modify the Bond
Nomination in the event of the death of
one of the joint Nominated Beneficiaries.
“Down-the-Line” Succession
As an alternative to joint survivorship,
a Bond Nomination can be structured
to operate with “down-the-line”
intergenerational succession.
Here the Bond Nomination can be
directed to automatically re-allocate
from the originally specified Nominated
Beneficiaries (e.g. children) to pass
“down-the-line” to their respective
Personal Legal Representative in the
event of say one of them (e.g. a son
or daughter) pre-deceases the other
originally Nominated Beneficiaries.
If an investor wants to establish a
Bond Nomination with “down-theline” succession arrangements, please
contact us for a specially tailored
Nomination Form.
Main Menu
Making Charitable Bequests Using
Nominations
Imputation Bonds have a special
Nomination mechanism allowing
philanthropic bequests to charities,
churches, hospitals, schools etc. This
mechanism enables a Nomination to be
made discreetly and as a “non-estate”
asset can help to put these types of
bequests beyond challenge of Will and
legal estate beneficiaries.
These types of Nominations are possible
because Bond Nominations can also
be made in favour of legal entities,
including companies and incorporated
associations.
Charitable bequests are often the target
of disgruntled family members left out
of, or unhappy about the Will. Using the
Imputation Bond’s unique feature for
making charitable bequests can ensure
the wishes of the benefactor are privately
and directly met.
More Estate
Planning Strategies
Back to Strategies
More about Estate Planning and Insurance Bonds (continued)
10
Main Menu
Partial Nomination/Estate Outcome
Additional Lives Insured
Intergenerational Wealth Transfers
By structuring a Bond Nomination to
cover less than 100% of the Bond’s
future Investment Benefits, say 50%,
then upon a death maturity occurring,
we will pay 50% of the Imputation
Bond’s proceeds to the Nominated
Beneficiaries. The other 50% will be paid
to the legal estate via its Personal Legal
Representative.
Imputation Bonds also have a special
feature allowing an additional Life or Lives
Insured to be added during the course
of the Bond. This is possible because
this style of life insurance “investment
business” does not require the Bond
Owner to have an “insurable interest” in
the Life Insured.
With an Imputation Bond, the investors
can put in place arrangements that are
not only separate from their Will, but can
facilitate the Bond’s proceeds passing
to the investor’s intended beneficiaries
well after (e.g. many years) the date of
the investor’s death. As such, Imputation
Bonds can be structured to achieve
intergenerational wealth transfers.
Bond Nominations Contrasted
with Superannuation
Nominations
Imputation Bond Nominations and
superannuation death nominations
can similarly operate to directly
distribute investment proceeds upon
the investor’s death and bypass the
Will and legal estate.
In contrast, a Bond’s Nomination is
neither subject to trustee discretions,
nor does it entail natural person
or “dependant” restrictions as to
the range of possible beneficiaries.
Additionally, Bond Nominations once
made do not have to be periodically
refreshed or reconfirmed in future
years.
However, when adding a Life Insured
there needs to be continuity traceable to
the Imputation Bond’s original Life Insured
so as to not jeopardise its tax status by
creating a new policy.
Using Multiple or Other Persons as
Lives Insured
This can be done by specifying other
persons (rather than the investor as Bond
Owner) to be “Life Insured 1” and “Life
Insured 2” of the Bond.
In order to give greater certainty to fulfilling
the investor’s intentions, the investor may
want to consider setting up a Bond with
younger joint Lives Insured, and selecting
an Investment Term well beyond their life
expectancy.
This can be done by using the multiple
Lives Insured (or Other Lives Insured)
feature, which can allow an Imputation
Bond’s legal ownership to be structured
to continue after the Bond Owner’s
death in the hands of a trustee, executor,
or estate administrator. As such its
investment maturity can be matched to
specific planning objectives at the Bond’s
full intended Investment Term (e.g. 30
years), such as for meeting a long-dated
endowment or an intergenerational wealth
transfer.
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Life Events and Insurance Bonds
11
i
Main Menu
j
k
Financial Planning Issue
Financial Planning Issue
Financial Planning Issue
• Education funding.
Children’s punitive tax rates.
Home care and residential aged care income thresholds impacting pensions, aged care
daily fees, and home care costs.
• Home ownership.
Alternative/Strategy
Managed funds or direct investments
Alternative/Strategy
Alternative/Strategy
Family trust.
Family trust.
OR
Potential Limitation(s) With
Alternatives
Education savings plans
• Cost of setting up and administering.
Potential Limitation(s) With
Alternatives
If managed funds or direct investments:
Required to keep tax records, including
withholding tax.
Make annual tax declarations.
OR
Annuity.
• Higher Division 6AA (child/minor) tax
rates still apply.
Potential Limitation(s) With Alternatives
Austock Life Solution
• Cost of setting up and administering.
During bond accumulation (even for child
under 18 years) not taxed at investor
level.
If Family trust:
• Look through of asset ownership/assessable income still applies to income and assets
tests.
If Annuity:
• Low returns/limited investment choice.
If education savings plans: Restricted
use and caps - often limited investment
choice.
• Longevity risk and inflexible estate planning.
• Cannot access or break without penalty.
Austock Life Solution
Austock Life Solution
• Childbuilder bond set up for Intended
Purposes.
• Bond held in Austock Bonds Custodian (bare) Trust can manage income levels by
quarantining income in a non-income distributing structure.
• Has flexible ownership and
transferability.
• Simple tax effective and timely estate planning.
• Extensive investment menu strategies set to objectives and risk
appetite.
• Able to by-pass estate if required.
• Fully accessible if required.
ChildBuilder
Aged Care
Strategies
More about Life Events and Insurance Bonds
12
Home and Residential Aged Care
Strategies
Eligibility for various Government
income support payments, and also
determination of the level of a person’s
residential aged care fees and home care
fees are subject to an income test and
(with aged care fees) also an assets test.
Indeed, for those planning or about
to enter a residential aged care facility
(and possibly restructuring their assets,
including the sale of the family home)
could be concerned about being
adversely affected by either, or both of
these tests. These tests could potentially:
•
reduce their pension entitlement;
•
increase their daily fee for residential
aged care; or
•
increase their cost for home care.
By holding some of their investments
in an Imputation Bond in a special
designated private trust, may assist
their situation by “quarantining” income
from the income test, and bring about
reduced care fees and improved pension
entitlements.
Additionally, the Tax-Paid Term Deposits
Portfolio as a familiar and secure
underlying investment asset can offer
“peace-of-mind” both to the person in
care and their family members.
The Real Marginal “Tax-Bite”
When combining the effects of a
pension recipient’s normal MTR
with:
•
an increased Medicare levy;
•
a reduced low income Tax
Offset; and
•
a reduced seniors and
pensioners Tax Offset,
the real marginal “tax bite”
resulting from earning greater
personally-assessed income
can often be much higher than
a pensioner’s typically low MTR
(such as 21.0% ). Indeed, for
some, the impact can be a real
marginal “tax-bite” beyond 40%.
Main Menu
Create Specific-Purpose Endowments
Other Life-Events Strategy Ideas
Investors can use an Imputation Bond to
build a lump sum endowment for many
special-purpose life-event objectives.
Such endowments can be structured to
be available to someone at a certain age,
or perhaps in the event of death.
Use an Imputation Bond as:
Bonds are also used to fund unknown
life-event contingencies (such as sickness
or for medical expenses) or even as a
nest-egg to draw-down against over a
future period.
Sinking Fund Strategies
Imputation Bonds are ideal for
accumulating lump sums to meet future
financial obligations, such as use as a
sinking fund to discharge borrowings.
Early Mortgage Payout
A tenet of financial planning is to pay
off the home mortgage as a first order
priority. Investors can address similar
ends by using the Imputation Bond as
a sinking fund designed to discharge
a mortgage on a pre-set future date,
without losing control or access to the
funds if plans change.
•
a dedicated fund to pay an
investor’s health insurance from
or at a particular future date, or as
an investor’s own private health
“insurance” contingency fund;
•
a provision for retirement
accommodation costs;
•
funding for a well-deserved and
extended overseas trip;
•
a way to meet funeral expenses;
•
financial provisioning for a child
or a loved one with a physical or
intellectual disability; or
•
a dedicated fund to meet costs of
financially maintaining children, such
as in circumstances of a divorce.
Back to Strategies
More about Loans and Gearing Strategies
13
Imputation Bonds (and ChildBuilder
Bonds) like other types of insurance
bonds can be used as security for
loans for a variety of purposes including
business, investment, or even private
or domestic applications. A Bond
represents an ideal form of loan security
because:
•
•
it is a non-distributing, capital growth
investment that compounds in a taxeffective environment; and
security arrangements are relatively
straight forward. A lender will
typically assign “loan-to-value”
ratios for each Investment Portfolio
(generally between 40% and 90%)
with an overall dollar loan limit
depending on the Bond Owner’s
investment menu selection.
Liquidity from an External Source
A loan facility against the Bond can
be used as an alternative to making
withdrawals. This might be useful in an
education funding strategy, (especially
in a Bond’s early years) or perhaps to
help prolong the Bond’s tax-effectiveness
(by extending its duration, rather than
withdrawing).
Imputation Bonds and Margin Lending
For higher taxed investors, the
combination of these two long-term,
potentially tax-efficient investment
structures can open financial planning
applications.
Main Menu
Tax Deductibility of Interest for
Certain Loans
Tax deductibility of interest should apply
where a loan secured by an Imputation
Bond is used for business purposes
(such as for working capital and normal
business outgoings) and for investment
purposes (such as investing into income
producing investments like shares,
property and managed funds). (p.23)
When loan funds are used to finance
a contribution to an Imputation Bond,
interest on the borrowing is not
deductible.*
* A similar tax deduction denial applies to any
financing costs involved with non-concessional
superannuation contributions.
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Foreign Investors and Insurance Bonds
14
L
Financial Planning Issue
Investment for expats, non-residents, non-resident tax status, or Significant
Investor Visa (SIV) applicants.
Alternative/Strategy
Managed funds or direct investments.
Potential Limitation(s) With Alternatives
•
Not eligible to use superannuation system.
•
Unfamiliar with Australian tax system.
•
Requires tax records being kept, making annual tax declarations and
withholding tax payable.
•
A change of tax residency may trigger a tax event.
Austock Life Solution
•
Bonds tax-paid – no annual tax declarations or TFN required.
•
No withholding tax applied to bond returns.
•
Bond tax offset is available with “10-year eligible tax period”.
•
Bond and investment options available are SIV compliant.
More on
Foreign Investors
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More about Foreign Investors and Insurance Bonds
15
Types of Foreign Resident Investors
There are various types of foreign
investors who can potentially benefit
by investing in an Australian insurance
bond. Subject to assessing any tax and
other relevant considerations that may
need to be taken into account in their
respective countries, the range of foreign
investors include:
•
overseas expatriates working in
Australia, either for a short stay or a
longer period;
•
non-Australians residing in Australia
or just visiting;
•
Australians, who are working in a
foreign country and may also have
foreign investor status;
•
prospective immigrants, who may be
considering a future life in Australia
– including those preparing for
migration and seeking Australian
residency status under various forms
of visas; and
•
Strategies for Foreign Resident
Investors
•
An Imputation Bond can hold attractions
to foreign investors from various
perspectives:
•
•
•
other foreign persons, who seek to
invest in Australia.
Under current Australian rules, any
person can invest in an insurance bond
– including non-Australians (whether
resident or not) and also Australians
(whether resident or no longer resident).
Main Menu
•
the Bond’s on-going growth or
earnings is taxed in the hands of
Austock Life – this is the Portfolio
Tax that we pay at effective tax rates
generally below 30% – meaning that
foreign investors can be advantaged
by tax rate “arbitrage” benefits;
as a “Set-and-Forget” investment
during the Bond’s accumulation
phase foreign investors do not incur
personal taxation or CGT liabilities nor do they need to keep tax records
or make annual tax declarations in
Australia. Additionally, Australian Tax
File Number notification requirements
do not apply;
Australian non-resident withholding
tax does not apply to the growth or
earnings of an Imputation Bond. It also
does not apply to withdrawals (in full or
part) made at any time from the Bond;
all of the elements of the insurance
bond tax framework applicable to
Imputation Bonds - including the
30% Tax Offset – apply whether the
Bond investor is a resident or a nonresident; and
in general, no particular restricting
provisions are currently understood
by us to apply in Australia’s various
international agreements, in relation
to insurance bonds, including
Imputation Bonds (and ChildBuilder).
Significant Investor Visas (SIV)
Whilst insurance bonds are eligible as
“financial products” for SIV applications,
care is needed to ensure that any
Investment Portfolio selected from the
Imputation Bond’s menu is invested into
UMFs or is comprised of investments
that have and are maintained on an
ongoing basis to be SIV compliant.
Insurance bonds (such as the Imputation
Bond) can assist foreign investors
seeking to obtain an Australian SIV by
investing at least $5 million into one or
more qualifying Australian investments.
The Imputation Bond’s menu has a
range of Investment Portfolio options
that are invested into UMFs that have
currently SIV compliant managed fund
status under the Federal Government’s
SIV program.
Apart from their general attractions for
foreign residents, Imputation Bonds
then can hold special appeal to SIV
applicants:
•
unfamiliar with the Australian
taxation system as they are Tax-Paid
investments with the simplicity of
“Set-and-Forget” tax administration;
and
•
unfamiliar or unsure of Australian
investment markets and wanting
conservative and safe investment
options, such as using the TaxPaid Term Deposits or the ADI/
Bank Securities Portfolios on the
Imputation Bond’s menu.
This is a complex area of the law
and each foreign investor should
take expert professional advice
to consider his or her position
– including determining the one
or more countries of his/her tax
residence and the tax status
on how realised proceeds and
investment growth on an insurance
bond will be taxed (if at all) in that
or those countries.
We recommend for SIV applicants
that their professional advice
extends to the current and ongoing
SIV compliant status of investment
options on the Imputation Bond’s
menu.
Back to Strategies
Previous Strategy
Tax Framework
“Annuity Like” Streams and Insurance Bonds
16
M
Main Menu
Explaining “Tax-Free” and “Tax-Paid”
Financial Planning Issue
By a “Tax-Paid” investment, we mean that an institution (such as a life
insurance company like Austock Life) or a fund (like a superannuation
fund) meets the investment’s ongoing tax payments and reporting
obligations instead of tax on ongoing earnings being personally
imposed on the investor.
Providing an annuity stream.
Alternative/Strategy
Ordinary or lifetime annuities.
There are two basic types of Tax-Paid investments – both are aimed at
long-term investing with both having special tax concessions.
Potential Limitation(s) With Alternatives
Superannuation is one form. Here, a superannuation fund pays tax
annually on behalf of investors. The trade-off for superannuation’s lower
taxed environment, which has a maximum 15% Tax-Paid fund rate, is
a set of complex and often changing rules governing when and how
much an investor can invest and access restrictions until the investor
reaches retirement after the Preservation Age of 55 to 60 years.
•
Locked in to fixed rate, fixed payments and frequency.
•
Inability to top up annuity (need to start a new one).
•
Cannot access or break without penalty.
Austock Life Solution
•
Bond structured with annuity-like stream - vary amount and frequency.
•
Select and manage investment return profile.
•
Replace or introduce new annuitant(s) mid-stream.
•
Residual structured with tax-effective estate planning.
Annuity-Like
Streams
Insurance bonds (like Imputation Bonds and ChildBuilder) are another
Tax-Paid investment, where a life office pays tax annually on behalf of
their investing Bond Owners. Although insurance bonds have a higher
maximum 30% Portfolio Tax rate, they entail lesser trade-off rules and
restrictions than superannuation, in terms of having no caps or age–
based/work-test restrictions on contributions, hardship access rules or
Preservation Age rules restricting access to the investment.
Importantly though, both superannuation and insurance bonds can
make “Tax-Free” distributions to investors. In general terms, for
superannuation, this is for access once investors reach their retirement
after Preservation Age or at death, whilst for insurance bonds, receipts
are Tax-Free when paid after 10 years (at any age) or in circumstances
of death, disability or in financial hardship.
Main Menu
More about “Annuity Like” Streams and Insurance Bonds
17
An Imputation Bond can be set to generate
a tax-effective and regular “annuity-like”
payment stream. Investors have total
flexibility to vary at any time the stream’s
payment amounts and/or their frequency of
drawing them against the Bond’s value.
•
Such a payment stream is easily set up
using the Imputation Bond’s automated
Regular Withdrawal Facility for
paying monthly, quarterly or annual
draw-downs.
•
The Bond’s 30 option menu has various
Investment Portfolio options which are
suited to back such a payment stream,
and additionally investors have tax-freedom
to manage their Bond’s mix by switching
between Investment Portfolios at any time.
Variable Payment Stream and Estate
Planning Advantages
Importantly, this type of “annuity-like”
payment stream can have advantages
over ordinary or lifetime annuities,
including:
•
the payment stream created
is variable and can be flexibly
managed. For instance, it could be
structured to approximate a Bond
Owner’s (or joint Bond Owner’s) life
expectancy or to last for a fixed term
and this can be altered at any time;
ability to replace or introduce a
succeeding “annuitant” at any time,
even prior to the death of the original
Bond Owner. As such, this strategy
can be useful in addressing longevity
risk; and
estate planning options for a Bond’s
“residual” value after the regular
payment stream ceases. The residual
can be structured under the Bond to
pass to Will or non-Will beneficiaries
as Tax-Free distributions and/or paid
to specific Bond Nominees.
•
may want irregular access to their
investment without incurring early
access penalties; or
•
may want the ability to make
additional contributions to their same
investment at any time.
have superannuation Account-Based
Pensions that:
•
Ideas On Most Suited Investors
Variable payment streams created in this
fashion may suit higher taxed investors,
including those who:
might have an ordinary guaranteed
type Annuity that they:
•
want to combine with (or have
supplemented by) a variable
“annuity-like” payment stream,
where its performance is investmentlinked to their own choice of
Investment Portfolio options from the
Imputation Bond’s menu.
are averse to ordinary guaranteed
type Annuities because they:
•
do not want to be locked into a fixed
rate lifetime or fixed term annuity,
nor be locked into their fixed annuity
payment amounts and frequency;
•
do not fully meet their financial needs
because of insufficient investment
accumulation due to restrictive
superannuation contribution caps,
employment contribution levels,
age-based restrictions or due to any
draw-down range limits; and
may have become treated as
“deemed” financial investments as
from 1 January 2015.
If an Imputation Bond is held within a
designated private trust, a payment
stream draw-down could result in only a
small income component amount being
assessable for tax and social security
pension purposes. Here, the Bond’s
payment stream could offer an attractive
and flexible alternative – compared with
a more rigid annuity or superannuation
pension.
It is important to understand
that an Imputation Bond regular
payment stream is not an ordinary
type annuity, such as when an
investor invests a lump sum in
return for a pre-determined (often
guaranteed) lifetime or fixed term
regular income stream.
Using an Imputation Bond to
generate an “annuity-like” payment
stream involves risks borne by
the investor as to the suitability of
the Investment Portfolios selected
to support the level of payment
amounts, their frequency and how
long the payment stream might last
before it is exhausted.
Back to Strategies
Back
Types of Investment Plans
About the Insurance Bonds Tax Framework
18
1.
Whole Term Advantages
1.
2.
Investment Growth is Tax-Paid for investors
Personal Tax Rate “Arbitrage” Benefits
Before 10 Years Tax
Advantages
3.
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Each of the Bond’s 30 Investment Portfolios has
its own effective Portfolio Tax Rate. These are
the effective tax rates that we use in paying tax
on your clients’ behalf — and across the menu
they generally range between 21% to 30%.
(The benefit of lower effective tax rates translates
to higher unit prices and improved performance.)
After 10 Years Tax
Advantages
4.
30% Tax Offsets on
Withdrawals and Tax
Deferral Benefits
Tax-Free Access to
Bond’s Investment
Benefits
20+
Years
2.
10
Years
0
3.
Years
Other Whole Term Advantages
5.
6.
Tax-Free Distributions in the Event of Death
7.
Bond Transfers (and ChildBuilder vesting) Without
Personal Tax or CGT
8.
9.
10.
Benefits of 125% Add-On Feature
Switch Menu Investment Portfolios Without Personal
Tax or CGT
Tax Deductions for Loans Secured by Bonds
“Set-and-Forget” Investments
The Imputation Bond’s (including ChildBuilder’s)
long-term investment compounding benefits
are amplified under its Tax-Paid environment
where we (Austock Life) pay tax annually (on
investment growth) on behalf of Bond Owner(s).
4.
5.
Personal tax rate “arbitrage” advantages
arise for higher taxed investors due to the
difference between their ongoing personal higher
marginal tax rates (MTR) (e.g. 39%, 49% or
even up to 66% for children) and the lower
effective Portfolio Tax rates of the Bond’s 30
Investment Portfolios.
Valuable 30% Tax Offsets can apply to a
Bond’s investment growth if received (e.g. by
making withdrawals) within its first 10 years.
Over a Bond’s first 10 years, the application
of the investor’s MTR to its investment growth
component is deferred to the particular future
year(s) (if any) that the investor might choose to
access the Bond by making withdrawals.
Imputation Bond’s and ChildBuilder’s
investment proceeds accessed after 10 years
(and beyond) under any circumstances are
Tax-Free distributions.
Distributions made due to a death maturity
of a Bond’s Life Insured (Nominated Child for
ChildBuilder) at any time (pre or post 10 years)
to Bond Owners or to a legal estate of the Bond
Owner or a Nominated Child are also Tax-Free.
6.
The Bond’s Investment Portfolio switching
facilities allow the investor at any time to
change its investment mix seamlessly and
without personal tax or CGT implications.
7.
Imputation Bonds can be transferred (i.e.
assigned) to another person or entity. With
ChildBuilder, its ownership is automatically
transferred when it vests in a Nominated
Child. There are no personal tax or CGT
implications with either type of transfer – they
occurs with full retention of the Bond’s tax
advantaged status.
8.
With the 125% Add-On Feature an investor
can progressively increase contribution
levels with shorter waiting periods to a
Bond’s optimal post 10-year status (125%
Add-On Feature contributions can also
continue after the 10-year point).
9.
Imputation Bonds and ChildBuilder can
be used as security for loans for a variety
of purposes – tax deductibility of interest
should apply where loans are for business
and income-producing purposes.
10.
These are “Set-and-Forget” investments
– whilst they accumulate, have no
burdensome annual taxation or CGT
reporting obligations. The Bond’s also do not
add to personal “taxable income” from year
to year and do not usually entail any CGT
consequences.
Back to Strategies
Back
Best Suited Investors
Types of Investment Plans
19
Lump Sum Plans
Lump Sum Plans – Initial investments
Both Imputation Bonds and ChildBuilder
Bonds can be established under a Lump
Sum Plan by making an initial investment
contribution (minimum $5,000). This can
be a single and perhaps only investment
under the Bond or an investor can later
make Add-On Lump Sum Investments.
A $500 minimum allocation to each
selected Investment Portfolio option
applies to the initial contribution.
Lump Sum Plans – Add-On
Investments
Once the Bond is established, an
investor has flexibility to make further
Add-On Lump Sum Investments in
minimum $1,000 lots at any time. It is
important to be aware of the 125% Rule
when making Add-On Investments.
Again, the $500 minimum applies for
each Investment Portfolio option when
making additional investments.
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Savings Plans
Savings Plans are for making smaller,
ongoing investment contributions on a
regular basis to an Imputation Bond or
ChildBuilder Bond.
Savings Plans have a minimum initial
contribution of $2,000 with a minimum
initial $500 allocation needed for each
Investment Portfolio.
Idea for Savings Plan - Child’s Education Funding
Thereafter, regular ongoing savings can
be made monthly, quarterly, half yearly or
annually based on a minimum of $200
per month with a minimum allocation
to each selected Investment Portfolio
of $50. The level of regular savings
contribution amounts (by agreement with
us) can be set for automatic escalation
to higher amounts or percentage
increase over agreed periods.
A ChildBuilder Bond is an ideal way for making dedicated savings aimed at funding
primary and secondary school fees.
Savings Plan contributions will be
invested in the same Investment
Portfolios and in the proportions
specified in the original Application Form
until varied in writing.
During this Accumulation Stage investors can continue their Savings Plan and
also have the option to make Lump Sum contributions using the 125% Add-On
Feature. Investors can also use ChildBuilder’s Regular Withdrawal Facility (e.g.
monthly/annual) as a convenient way to pay the education costs.
If investors using a Savings Plan should
be aware of the 125% Rule.
Back to Strategies
Importantly, parents (or grandparents) are able to retain control of the investment
just in case unforeseen circumstances arise with the child or there is a change
of mind to use the Bond for non-education purposes. It is also ideal because
ChildBuilder is a “Set-and-Forget” investment.
A ChildBuilder can be established using a Savings Plan with a primary Intended
Purpose of your clients’ investment building to a certain level, from which point they
begin drawing-down to finance the Nominated Child’s education costs.
If all of the ChildBuilder’s investment balance is not used for education funding
(or an investor’s personal unspecified uses) the investor has the option of the
ChildBuilder (with its remaining balance) being left to vest in favour of the
investor’s Nominated Child at the Vesting Date.
ChildBuilder
Security and Protections
Back
Best Suited Investors
20
Main Menu
Imputation Bonds (including ChildBuilder)
are best suited for investors:
Personal Tax Arbitrage
•
seeking a tax-effective, internally
compounding investment over a
longer-term time-frame
•
wanting “set-and-forget” benefits
of no burdensome annual personal
tax or CGT reporting
•
•
•
not wanting to annually receive
taxable distributions of income or
capital gains
wanting an extensive menu of
Investment Portfolio options and
who are comfortable with Managed
Funds as their Bond’s underlying
investments
wanting tax-freedom to manage
their selected Investment Portfolio
mix under its “umbrella” fund
structure.
INVESTMENT
ASSET CLASSES
Insurance bonds suit investors with personal
Marginal Tax Rates (MTRs) including the
Medicare Levy above 30%. It can often
be overlooked that many investors have
MTRs of 39% or 49% (or even up to 66%
for children) applying to each incremental
dollar of investment income.
The critical point is that there is an
“arbitrage” advantage because
personal tax rates for this higher
MTR investor group exceed the range
of effective Portfolio Tax rates that
apply to Austock Life at the Investment
Portfolio level. Lower effective tax rates
translates to higher unit prices and
improved performance.
Portfolio Tax Rates are determined by
each Portfolio’s level of imputation and
foreign tax credits, tax deductions and
earnings on deferred tax provisions. The
effective Portfolio Rates used in our daily
unit pricing are estimated and subject to
periodic actuarial review.
ESTIMATED EFFECTIVE
PORTFOLIO TAX RATE RANGES
Australian Shares
23% – 27%
Australian Shares (50% geared)
21% – 27%
International Shares
22% – 30%
Australian Fixed Interest
27% – 30%
International Fixed Interest
27% – 30%
Property Securities
22% – 29%
Cash & Term Deposits
27% – 30%
Don’t Overlook The Real Marginal
“Tax-Bite”
“Tax-Bite” – Home and Residential
Aged Care Strategies
When combining the effects of a pension
recipient’s normal MTR with:
Determination of a person’s residential
aged care fees and home care fees are
subject to an income test and (with aged
care fees) also an assets test.
•
an increased Medicare levy;
•
a reduced Low Income Tax Offset;
and
•
a reduced seniors and pensioners
Tax Offset,
the real marginal “tax-bite” resulting
from earning greater personally-assessed
income can often be much higher than
a pensioner’s typically low MTR (such as
21.0%). Indeed, for some, the impact
can be a real marginal “tax-bite”
beyond 40%.
Those entering a residential aged care
facility (and possibly restructuring their
assets, including the sale of the family
home) could be concerned about their
real marginal “tax-bite” due to impacts
of either, or both of these tests, which
could potentially:
•
reduce their pension entitlement;
•
increase their daily fee for residential
aged care; or
•
increase the cost for home care.
By holding some of their investments
in an Imputation Bond in a special
designated private trust, may assist
their situation by “quarantining” income
from the income test, and bring about
reduced care fees and improved pension
entitlements.
About Imputation Bond
Back
Security and Protections
21
Nature of the Contract
Both Imputation Bonds and ChildBuilder
Bonds are forms of investment-linked life
insurance contracts with Austock Life.
Their APRA approved Product Rules
and investor Application constitute the
basis of this contract (also known as a
“Bond”) and they govern its terms and
conditions, which are also subject to the
Life Insurance Act.
Security of the Investment Portfolios
Each Bond’s contractual liabilities to
an investor are supported by matched
assets held by Austock Life in legally
separated (but contractually linked)
Investment Portfolios, which are divided
into units.
Imputation Bonds and ChildBuilder
operate under a secure legal framework
with a flexible investment structure.
Austock Life must legally hold each of
the Bond’s 30 Investment Portfolios as
distinct and separate funds. This “ringfences” each fund into a discrete pool of
investment assets to be strictly applied
only in meeting our contractual liabilities
to Bond Owners with interests in that
particular Investment Portfolio.
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Importantly, each Investment Portfolio
is a legally independent fund protected
from financial problems (e.g. liquidation
or windup) that could befall the
Company or are caused by contagion
from other Investment Portfolios.
Additionally, these Investment
Portfolios (called “Benefit Funds” or
“Statutory Funds” under the Life Act)
can individually or as multiple funds be
transferred to another life office, either
voluntarily or at the direction of APRA.
For instance, in certain circumstances,
Investment Portfolios can be transferred
to fix financial distress in respect of
life products and/or their underlying
portfolios, or the funds are closed and in
run-off mode. Indeed, Austock Life over
the last 12 years, has been the recipient
of transferring Investment Portfolios of
three “acquired” friendly societies that
were closed to new business.
30 Investment Portfolios
Benefit
Funds
#1
#2
#3
#4
#9
#10
#11
#15
#16
#17 #19
#5A
#5B
#12 #12A #12B #13
30 Benefit Funds (Investment
Portfolio)
•
#5
Legally separated Benefit
Funds - Financial contagion is
not possible.
•
Transferable between Life
Companies - Voluntarily or by
APRA direction.
•
Each is invested into
Underlying Managed Funds.
•
Austock Life pays Portfolio Tax
(Tax-Paid).
•
Effective rates (21%-30%
p.a.) depends on Portfolio’s
Imputation credits, deductions
and tax reserving.
#20
#21 #22
#6
#7
#8
#14 #14A #14B
#23
#24
Bond
Investors
#25
Bond Investors
•
Contracts governed by APRA
Approved Product Rules.
•
Rules also govern Investment
Portfolio constitution and
Bond operation - applications,
withdrawals, switches etc.
•
Invest via ASIC Regulated
Corporations Law PDS.
Back
Ideas for Imputation Bond
Products - Imputation Bonds
22
Main Menu
About Imputation Bonds
An Imputation Bond is a new generation
insurance bond that innovatively
combines the long established taxation
benefits of an insurance bond with a
modern master fund-like investment
menu. This menu offers choice to select
across 30 Investment Portfolios that
use some of Australia’s best wholesale
managed funds.
Switching between Investment Portfolios
enables managing the Bond’s own
investment mix to suit the investor’s
life stage, changing circumstances or
market conditions — and switching has
the tax-freedom of no personal tax nor
CGT consequences.
The Bond’s Investment Portfolios do
not annually distribute income or
taxable capital gains to the investor.
Instead, all of their investment gains (both
income and capital) are automatically
reinvested and compound within each
Portfolio’s tax-effective environment.
Quick Facts Guide
What can your clients do with an
Imputation Bond
•Improve “after-tax” investment
performance using a Tax-Paid
insurance bond with “set-andforget” tax reporting benefits.
•Build Tax-Free lump sums to meet
your clients’ life-event planning
objectives using the Imputation
Bond’s many financial, tax and
estate planning applications.
•
Set up tax-effective “annuity-like”
payment streams (monthly/annual)
with total flexibility for variable,
deferred or ad hoc withdrawals
drawn against the Bond’s selected
investment portfolios.
•
Solve the common problem
for family, discretionary and
testamentary trusts of limited
beneficiary capacity and the shortcomings of tax deferral strategies
involved with distributing to so called
“bucket companies”.
•
Use our Bond’s special “Will-like”
nomination feature to convey taxeffective and protected inheritances.
This feature offers choice of “joint
survivorship” or “down-the-line
succession” rules as between
beneficiaries. It can also be used to
distribute in part to the legal estate
(i.e. via normal Will) and in part via the
Bond Nomination.
About ChildBuilder
Back
Products - Imputation Bonds
Main Menu
23
Social Security and Home/Residential Aged Care
Strategy Ideas for Imputation Bonds
Qualifying for government benefits & rebates
BCT & other designated private trust strategies Reducing care fees and improving pension
Integrated aged care strategies & estate planning
Life-Events Financial Planning
“Annuity-Like” Payment Streams
Creating endowments Early mortgage payout
Sinking fund strategies
Funding education/home ownership
Private Trusts and Alternative Structures
Imputation Bonds as private trust alternatives
Bonds inside discretionary & testamentary trusts
Solve limited distribution capacity/bucket companies
Alternative to private investment companies
Business Strategy Applications
Long service leave provisioning
Employee retention incentives
Succession funding
Business loan security
Imputation Bonds and Superannuation
Accessable alternative/complementary structure
Contribution limits strategy
Funds exiting superannuation pensions
Overcoming super’s estate planning limitations
Set up a flexible payment stream
Set or introduce succeeding “annuitants” Estate planning options for RCV
Estate Planning and Intergenerational Transfers
“Will-like”, “non-estate” tax effective inheritances
Simplify complex Wills & legal estates
Protected & confidential charitable bequests
Targeted intergenerational wealth transfers
Foreign Resident Investors and SIV Applicants
Tax-Paid simplicity & no non-resident withholding tax
SIV compliant Investment Portfolios
Loan and Gearing Strategies
Bonds as loan security in margin lending strategies
Business, investment or domestic loans
Creditor and Bankruptcy Protections
Imputation Bonds can carry valuable protections
Back
Ideas for ChildBuilder
Products - ChildBuilder
24
About ChildBuilder
ChildBuilder is a special-purpose type
of insurance bond structured under the
Imputation Bond’s product and taxation
framework and that uses its same 30
optioned master fund-like menu.
ChildBuilder is a long-term, growth
investment for building specific
endowments for children and
grandchildren. It has a flexible “vesting”
feature so that the Bond’s ownership
can be automatically programmed to
shift from the investor (e.g. parents/
grandparents) as original owner(s) to your
Nominated Child at a particular Vesting
Date. (Set by the investor between age 10
and 25.)
Until vesting, investors have full
control and access of the ChildBuilder
investment, including using the Bond
totally for their own purposes — rather
than allowing it to vest in favour of their
Nominated Child.
What can your clients do with a
ChildBuilder
•
•
Forward thinking parents and
grandparents use ChildBuilder as a
dedicated investment (optionally
earmarked for a dedicated purpose)
available to child at a set age between
10 and 25.
It’s a simple way to establish
specific inheritances for children
and grandchildren or to accomplish
tax-effective and targeted
intergenerational wealth transfers
outside of a Will.
Main Menu
•
•
•
Use ChildBuilder as a simple “off-theshelf” alternative to creating complex
and costly testamentary trusts for
children under a Will.
Optionally, specify “Intended
Purposes” for the endowment or
inheritance that ChildBuilder is set up
to deliver. (There is a menu of strategy
ideas).
ChildBuilder can be optionally used
as the parent’s (grandparent’s/
other person’s) own tax-effective
investment and totally for their own
purposes – rather than letting it vest
in favour of their Nominated Child.
Most often asked questions about
ChildBuilder
What is the legal status of an Intended
Purpose for ChildBuilder?
An Intended Purpose (like a first home
deposit) for ChildBuilder is like giving
non-binding instructions under a Will by
specifying a particular use for a bequest.
It is a non-legally binding expression
of the investor’s wishes for the Bond’s
future use. The investor or their
Nominated Child (after vesting) still retain
complete discretion to apply its proceeds
as desired.
Are there any taxation implications
if ChildBuilder is not used for an
Intended Purpose?
No – whether or not a ChildBuilder is
actually used for its stated Intended
Purpose has no effect on the Bond’s
valuable taxation status.
What if the Nominated Child dies
before the Vesting Date?
As the Nominated Child is also the
Life Insured under the ChildBuilder
Bond, it will mature and its Investment
Benefits will be a Tax-Free distribution
to the investor (as the owner prevesting) or to the estate or Personal
Legal Representative if the investor is
deceased.
What if the investor (as the
ChildBuilder’s owner) dies or become
bankrupt during the Bond’s prevesting stage?
Under the Life Insurance Act, the
Personal Legal Representative will hold
the ChildBuilder Bond in trust for the
Nominated Child until the Vesting Age, or
until the child’s prior death.
What are the Personal Legal
Representative’s powers and
obligations?
These are governed by the Life
Insurance Act, and empower him/her
to deal with ChildBuilder (e.g. make
withdrawals, add to it, transfer or
mortgage it), subject to such dealings
only being for the maintenance or
benefit of the Nominated Child.
Types of
Investment Plans
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More about ChildBuilder
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About Tax-Paid Term Deposits
Products - ChildBuilder
Main Menu
25
Family, Health and Wellbeing
Strategy Ideas for ChildBuilder
TM
Bonds
Wedding expenses Health insurance cover Starting a family
Medical & dental
Investment and Business
Home and Living
First home deposit/home ownership
Moving out of home/setting-up house
Investment fund/property
Buying a business
Education, Career and Job Training
Primary & secondary education costs
Degree or other qualification
Apprenticeship, trade or job training
Paying Out/Allieviating Student Loans and Debt
Pay out or reduce a student loan or HECS/HELP scheme debt
Possessions
Tools & equipment First car Travel
Overseas travel
Visit overseas relatives
ChildBuilder is a long-term investment designed to
address the many financial planning objectives to
give a child or grandchild a financial headstart.
Investors can optionally express one or more Intended
Purposes for ChildBuilder, and have these noted on its
Confirmation Certificate. ChildBuilder’s main strategies (with
case studies) are covered in detail over pages 10 to 15 in the
ChildBuilder brochure.
Study overseas ChildBuilder Brochure
Personal Achievements and Cultural Activities
Sporting
Music/Art
Religious/Cultural
Personal challenge
About the Bonds Custodia Trust
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Products - Tax-Paid Term Deposits
Main Menu
26
Strategy Ideas for Tax-Paid Term Deposits
About Tax-Paid Term Deposits
This is Australia’s first diversified and actively managed portfolio of Term
Deposits with the added innovation of being under a Tax-Paid insurance bond
framework.
Created as a special “product-like” Investment Portfolio (No.14A) on
the Imputation Bond’s investment menu, it has stand-alone attractions for
investors wanting a low risk investment class with fairly predictable returns,
and especially during uncertain and volatile market conditions.
Besides enhanced performance potential of an actively managed Tax-Paid
portfolio approach to investing in Term Deposits, investors can:
•
Gain superior liquidity of a daily unit priced portfolio of Term Deposits. Also
eliminate personal management of maturities and shopping around for
the best Term Deposit rates.
•
Use the Tax-Paid Term Deposits Portfolio as an alternative to a traditional
capital guaranteed insurance bond – it offers potentially better returns
with the high security of a portfolio of Term Deposits.
As one of the 30 options on the Imputation Bond’s menu, investors have taxfreedom to switch at any time to and from Portfolio No. 14A and to introduce
other asset classes to their Bond’s investment mix.
View Portfolio #14A
Fund Profile
More about Tax-Paid
Term Deposits
Tax Rate “Arbitrage” Strategies
Advantage to higher taxed
investors of holding their TDs
via a Tax-Paid Portfolio
Safe Haven and Tax-Effective
Term Deposits
Suits retirees worried about
capital preservation
Safely park/limit exposure
to investment risk in times
of market turbulence and
uncertainty
Pension Monies Exiting
Superannuation
A high security tax-effective
reinvestment vehicle for
ex-superannuation monies
Ideal for Aged Care and Home
Care Strategies
A safe “peace-of-mind” & well
understood investment suited to
shorter-term strategies
Alternative to Capital
Guaranteed Insurance Bonds
A high security portfolio of bankbacked TDs
Performance is not impacted by
APRA portfolio reserving costs
to support capital guarantees
Tax-Effective “Annuity-Like”
Payment Streams
Create a payment stream to
match TDs interest & timing of
capital returns
Use as an alternative to
Superannuation Account Based
Pensions
Product Quick Facts
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Products - The Bonds Custodian Trust (BCT)
27
About the Bonds Custodian Trust
The BCT is an “umbrella” private trust
structure invented by Austock Life. It
facilitates the “off-the-shelf” and low
cost production of multiple Bare Trusts
(once-off $100 per trust) for the clients
of Financial Advisers.
Each independently constituted BCT
Bare Trust can only hold an Imputation
Bond(s) as its investment(s).
By structuring a Bond’s legal ownership
in this fashion enables investors to
benefit from various financial, tax and
estate planning strategies centred on
holding insurance bonds inside private
trusts.
These strategies include advantages
associated with lessening the
impact of various “income tested”
qualification thresholds for the age
pension and/or income-tested aged
care accommodation and home care
package services.
The BCT has been specifically
tailored to ensure that it is treated as
a “designated private trust” and a
“controlled trust” of an “attributable
stakeholder” under the Social Security
Act 1991.
Main Menu
Strategy Ideas for the Bonds
Custodian Trust
•
Ideal for Aged Care and Home Care
strategies.
•
BCTs can meet “designated private
trust” guidelines for Social Security
purposes.
•
Use an Imputation Bond in a BCT
to create a tax-effective annuity-like
stream for Extended Deeming and
Account-Based Pension alternatives.
•
Imputation Bonds held in BCT Bare
Trusts can add additional levels
of confidentiality and “protective”
comfort.
BONDS CUSTODIAN PTY LTD
(Trustee of the Bonds Custodian Trust
including of each of the multiple Bare
Trusts established under its umbrella)
BONDS CUSTODIAN TRUST
(A private, non-distributing umbrella trust)
General Trust Area
(Procedure for establishing each
Bare Trust and the Trustee, BCL’s
limited role, duties and powers)
Bare Trusts Area
(Each Bare Trust can hold one or more
New or Existing Imputation Bonds)
Request a BCT Financial Adviser Kit
A comprehensive kit of BCT materials
and related Centrelink information can
assist Financial Advisers. It includes:
•
Adviser Guide & Application Form.
•
Statement of Advice Guidance
Note.
•
Bond Nomination Form.
•
DVA PC Form & PT Form.
•
Centrelink MOD PC Form & MOD
PT Form.
•
BCT Trust Deed (Extract).
PRIMARY BENEFICIARIES
(Each Primary Beneficiary retains
absolute ownership of the Imputation
Bond(s) held in his/her Bare Trust — Bond
Direct Operational Transactions are
undertaken directly with Austock Life)
Back to Strategies
A ‘Non-Deemed Income’
Investment Structure
Eligibility for various Government income
support payments and the level of
means-tested aged care fees involve an
income test and (often) also an assets
test. Under the deemed income test,
prescribed deeming rates are applied to
the value of an investment to determine
its deemed income, instead of its actual
income. This applies to most financial
investments such as cash, shares and
has recently been extended to include
new (post 1 January 2015) accountbased superannuation pensions.
One of the most valuable features of
an Imputation Bond is that it does
not annually distribute income (or
capital gains) and, when held within a
designated private trust, is assessed
by Centrelink and the DVA on an actual
rather than deemed income basis.
So, although an Imputation Bond held
within a trust continues to be assettested, it is income tested only if and
when a withdrawal takes place.
The shortcomings of this strategy have
in the past been the cost of setting
up and maintaining the private trust
structure, trustee selection and time
delays throughout the establishment
process. These shortcomings have
been resolved by the introduction of
the Bonds Custodian Trust.
Learn More
Investment Menu
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Product Quick Facts
28
Main Menu
PLAN OPTIONS
INVESTMENT MATURITY EVENTS
125% ADD-ON FEATURE
THE LIFE INSURED
Lump Sum Plans (minimum $5,000) and
Savings Plans (minimum $2,000).
Two maturity events cause the Bond’s full
benefits to become payable:
Progressively increase an Imputation
Bond’s or ChildBuilder’s tax-effectiveness
by making ongoing contributions right up
to, and even beyond the Bond’s optimal
post-10 year Tax-Free status.
For Imputation Bonds, the named
Life Insured is the person whose
death triggers paying Bond maturity
payments, if it occurs before the selected
Investment Term (1-99 years).
LOAN AND GEARING USING A BOND
Life Insured(s) can be the Bond Owner(s)
or other persons can be used. Joint
Lives Insured can be appointed.
•
the selected Investment Term (1 to
99 years) ends, or
Individuals (joint) and children
Companies
Private trusts
•
if the Bond’s “Life Insured” dies
before the selected Investment Term
ends.
UNIT PRICING
WITHDRAWALS
Daily for the 30 Investment Portfolios.
At any time (usually processed within 14
business days).
OWNERSHIP OPTIONS
SWITCHING INVESTMENT
PORTFOLIOS
Portfolio switching facilities allow
investors at any time to change their
Bond’s investment mix seamlessly and
without personal tax or CGT implications.
ANNUITY-LIKE PAYMENT STREAMS
Set up tax-effective “annuity-like”
withdrawal streams (monthly/annual) with
total flexibility for variable, deferred or
ad-hoc payment streams drawn against
a Bond’s selected investment portfolios.
INVESTMENT TERMS
For an Imputation Bond its Investment
Term can be set between 1 to 99 years.
For ChildBuilder, investors do not need
to nominate a term – the Bond ends
either when it is fully withdrawn by the
Bond Owner or Nominated Child, or it
“matures” beforehand if the Nominated
Child dies.
Imputation Bonds and ChildBuilder
Bonds can be used as security for
loans for a variety of purposes – tax
deductibility of interest should apply
where a loan is used for business and
income-producing purposes.
ESTATE PLANNING
“Will-Like” Bond Nominations can be
structured with:
•
Joint survivorship or down-theline succession for Nominated
Beneficiaries
•
Charitable bequests and nominating
entities.
TRANSFERRING BONDS
Both types of Bonds can be transferred
to someone else (including entities) and
importantly, with full preservation of the
Bond’s tax-advantaged status.
Bonds owned by a company, a trust or
other legal entity still need an individual
as Life Insured.
For ChildBuilder, the Nominated Child
is automatically installed as Life Insured
at the time of its establishment.
Back
CONTACT US
Investment Menu - 30 Investment Options
29
P I M C O
P I M C O
Main Menu
Main Menu
Contact Us
Richard Atkinson
0417 541 897
Jeff Rodgers
National Sales Manager
Joanna Bator
0419 746 595
QLD & NT
VIC & TAS
Niall Nugent
0407 858 305
[email protected]
Telephone (03) 8601 2040
or 1800 806 362
Facsimile Email Website (03) 9200 2281
[email protected]
www.austocklife.com
0428 269 034
[email protected]
WA & SA
[email protected]
Melanie Fairbairn
0416 940 041
[email protected]
[email protected]
Angela Laughlin
0401 443 002
[email protected]
[email protected]
Tony Gobbo
Austock Life Limited
NSW & ACT
Head of Distribution & IFAs
0408 109 681
Bob Scherini
0449 960 048
[email protected]
Disclaimer: This Reference Material has been strictly prepared for the exclusive use and guidance of licensed Financial Advisers and is not intended for any public or general distribution whatsoever. Austock Life
Limited AFSL 225408 (Austock Life, we) has produced it based upon a general understanding of Australian taxation laws and other applicable legislation, rules and guidelines applicable at the time of production. None
of Austock Life, nor its parent entity, Austock Group Limited ABN 90 087 334 370, make any guarantee, warranty or representation as to the accuracy or completeness of the general advice and information contained
in this document, and you should not rely on it. No responsibility for any errors or omissions or any negligence is accepted by Austock Life or Austock Group Limited. The Product Disclosure Statement should be
considered in deciding whether to acquire, or continue to hold Imputation Bonds, Childbuilder Bonds or investments into the Tax-Paid Term Deposits Portfolio. Published June 2016.