If you're looking for a simple, tax-effective way to invest for the long term, you may have come across investment bonds. But what exactly are they, and how do they work?
What is an investment bond?
An investment bond is a tax-effective investment solution where you can invest in a range of asset classes, such as shares, fixed interest, cash, property and diversified portfolios.
Unlike investments held in your own name, tax on investment earnings is paid within the investment bond by the issuer, such as Generation Life.
This is why investment bonds are often described as 'tax-paid' investments.
How are investment bonds taxed?
Investment earnings retained within an investment bond, are taxed at a maximum tax rate of 30%, rather than at your personal marginal tax rate. These earnings also don't form part of your personal taxable income.
Importantly, the actual effective tax rate paid with the investment bond may be less than 30% depending on factors such as the types of assets you invest in and the level of tax management undertaken by the product issuer, including management of imputation and foreign tax credits.
This tax-paid structure may be particularly beneficial for investors whose personal marginal tax rate is more than 30%.
What happens after 10 years?
Investment bonds are generally designed to be held as long-term investments. If you hold an investment bond for at least 10 years without making a withdrawal, withdrawals after the 10th anniversary can generally be made without any additional personal tax on the investment earnings, provided the relevant rules are met.
Unlike superannuation, your money is not locked away during this time. You can access your investment whenever you need to by submitting your request with the required documentation. If you do make a withdrawal within the first 10 years, investment earnings will need to be included in your assessable income. A 30% tax offset is available for the tax already paid within the investment bond or to be used against any other tax liabilities you may have.
Why consider an investment bond?
An investment bond can offer:
- A tax-effective way to invest.
- Access to a range of investment options.
- No annual personal tax reporting on investment earnings.
- The flexibility to access your money at any time by submitting the required documentation.
- Additional tax benefits when held for at least 10 years, subject to the relevant rules.
In simple terms
An investment bond takes care of tax within the investment itself, rather than passing investment earnings through to you each year.
You choose how your money is invested, Generation Life manages the tax within the investment bond, and your investment can continue to grow over time.
For investors looking to build wealth over the long term, an investment bond can provide a simple combination of tax effectiveness, investment choice and flexibility.
Ready to explore investment bonds?
Discover how an investment bond could help you invest for the long term, with tax-effective investing, a choice of investment options and the flexibility to access your money when you need it.
Learn more about investment bonds with Generation Life.
