Financial Adviser Reference Material
A ‘Non-Deemed Income’ Investment Structure
New from Austock Life
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) account-based 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 asset-tested, 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.
Enter the Bonds Custodian Trust (BCT)
So What Can the BCT Do?
The BCT is an “umbrella” private trust that Austock Life
has created to streamline the “off-the-shelf” production of
multiple Bare Trusts. Each BCT is designed specifically to
hold a client’s Austock Imputation Bond(s) and costs only
$100 with no ongoing charges.
In various client scenarios … where “deemed” or “taxable”
income received from investment assets increases a
regulated fee or reduces a social security benefit (under
relevant income tests), the BCT may be useful. For
instance, for clients impacted by Aged Care and Home
Care fees, or the new rules that reduce the Age Pension
or eligibility for the Commonwealth Seniors Health Card
(CSHC).
The BCT’s uncomplicated structure means each Bare
Trust does not require ongoing administration, accounting
or taxation reporting, including for the Imputation Bond(s)
held within a Bare Trust, and for each Bare Trust’s
1
beneficiary(s).
A BCT Bare Trust can be established at the same time
that the Bond investment is made – and, as it already has
a corporate trustee, eliminates the need to find a trustee.
Importantly, under a “Bare Trust” structure, full effective
control of the insurance bond rests with the trust’s
‘Primary Beneficiary’ (who is the client) or his/her attorney.
Under Social Security rules, a BCT Bare Trust meets the current
2
guidelines to be classified as a “designated private trust”.
February 2015
Various estate planning options are possible through
the BCT structure (including using Bond Nominations
with multiple beneficiaries). These can convey tax-free
distributions, with helpful “estate only” and/or outside of the
estate outcomes.
The BCT, Extended Deeming &
Account-Based Pensions
Now that ‘extended deeming’ rules apply to new Account
Based Pensions (from 1 January 2015), Advisers may
want to consider the opportunity to use a BCT Bare Trust
with an Imputation Bond set to generate an alternative
flexible cash stream instead of a more rigid annuity or
superannuation pension. This could be really helpful
for clients that might fear losing their CSHC – where
entitlement could be lost by exceeding a person’s ‘taxable
income’ threshold by even one dollar.
• Centrelink Friendly – The Bond’s investment income
should not be not deemed under the income test, when
held within a BCT Bare Trust.
• Low Tax Assessable Amount - Normally, only a
small component of a withdrawn amount from an
insurance bond is treated as assessable – and even this
fractionalised component is reduced to 2/3rds after 8
years, and reduced to 1/3rd after 9 years, and nil after
10 years.
• Full 30% Tax Offset – Applies to any assessable
component within the first 10 years (the 10-year period
can be re-set in certain circumstances).
• Reducing Asset Base – Clients may achieve better
assets test treatment.
• Easy to Establish – We even help pre-complete the
Centrelink / DVA forms.
• Low Cost - BCT Bare Trusts cost just $100 to setup.
Creating "Annuity-like" Cash Streams
This can be done from a directly-held Imputation
Bond or one held within a Bare Trust. Importantly,
this type of annuity-like (monthly or annual) cash
stream can have advantages over ordinary or lifetime
annuities, including:
• Flexibility - Clients have complete discretion
on the frequency, amount and duration of their
annuity-like payments – because they do not
have to meet ordinary annuity standards, plus
there is scope to make additional investments.
• Investment Choice - Clients select from a 30
option menu with internal switching without
personal tax or CGT events.
• Tax-Free Distributions for Estate Planning
Choice of Will or outside-Will beneficiaries whether dependents or not, with freedom to
change at any time.
• Eliminates Longevity Risk – The advantage of
being able to replace or introduce a succeeding
“annuitant” at any time, even prior to the death
of the original “annuitant” Bond owner. The Bond
can be held in single or joint names.
1. As Imputation Bonds do not distribute on-going “taxable income”, no tax
return is required for the Bare Trust and additionally no TFN is needed.
2. The BCT has been specifically tailored to ensure that it is properly treated
as a “designated private trust” and a “controlled trust” of an “attributable
stakeholder” under the Social Security Act 1991, and also the Veterans
Entitlements Act 1986.
About Austock Life
Austock Life is a leading and specialist issuer of insurance bond investments. Our flagship Imputation Bond (including
ChildBuilder) offers a master fund-like menu of 30 Investment Options constructed under an insurance bond “tax-paid”
and “tax-free” distributing structure.
Austock Life is an APRA supervised life insurance company established in December 2002. Since then, funds invested
into the Imputation Bond, ChildBuilderTM, and the Tax-Paid Term Deposits Portfolio now exceed $500 million. The
company is wholly owned by the ASX listed Austock Group.
Contact Our Distribution Team
Head of Distribution & IFAs
Richard Atkinson
[email protected]
NSW & ACT
0417 541 897
National Sales Manager
Tony Gobbo
[email protected]
0419 746 595
Austock Life Limited
Jeff Rodgers
[email protected]
0401 443 002
Telephone Joanna Bator
[email protected]
0416 940 041
Facsimile Email QLD & NT
VIC & TAS
Angela Laughlin
[email protected]
0407 858 305
Melanie Fairbairn
[email protected]
0408 109 681
Niall Nugent
[email protected]
Website (03) 8601 2040 or
1800 806 362
(03) 9200 2281
[email protected]
www.austocklife.com
0428 269 034
WA & SA
Bob Scherini
[email protected]
0449 960 048
Disclaimer: This Financial Adviser Reference Sheet is produced by Austock Life Limited AFSL 225408 ABN 68 092 843 902 (Austock Life, we) and is based upon
a general understanding of current Australian taxation and social security laws and other applicable legislation, rules and guidelines. Whilst we believe this material
is correct and any opinions have been made upon a reasonable basis, we do not warrant the accuracy of any information in this document and to the fullest extent
permitted by law, disclaim all responsibility for any loss or damage which may be suffered by any person directly or indirectly, through relying upon it, whether that loss
or damage is caused by the fault, negligence or omission of Austock Life or otherwise. This material provides general advice and summary information only, and does
not take into account any particular person's objectives, financial situation or needs. As a Financial Adviser Reference Sheet, it has been strictly prepared for the use
and guidance of Financial Advisers and is not intended for any public or general distribution whatsoever. In deciding whether to acquire or continue to hold an Imputation
Bond, investors should obtain and consider the PDS. None of Austock Life, its parent entity, Austock Group Limited ABN 90 087 334 370 or Bonds Custodian Pty Ltd
ACN 101 471 327 (collectively hereafter called the “Parties”) make any guarantee, warranty or representation as to the accuracy or completeness of the general advice
and information contained in this material, and you should not rely on it. No responsibility for any errors or omissions or any negligence is accepted by the Parties.