Eddie and Lynn were determined to provide their son, Henry, with a top-tier education in Australia. As they explored various options for financing Henry’s education, they came across the Education Bond: a tax-efficient savings vehicle specifically designed for education expenses.
The Education Bond offered the family an ideal solution for their financial planning needs. The bond provided several key benefits that were particularly attractive:
Tax Efficiency
The bond’s unique structure did not incur capital gains tax, making it a financially smart choice.
Access to Funds
The funds could be accessed at any time without penalties, ensuring flexibility.
30% Tax Offset
Withdrawals made for education expenses came with a 30% tax offset, providing significant tax savings.
Investment Protection
The bond allowed their investment to grow through compounding income and gains.
"The bond’s tax-efficient structure, ease of access, and strategic investment growth aligned perfectly with our needs."
Eddie and Lynn decided to transfer money from their bank account in China to an Australian bank account set up for Henry.
Henry, residing in Australia, used the funds sent by his parents to open the Education Bond. The initial deposit was made as a lump sum, though the bond also allowed for regular savings contributions.
During the application, Henry provided his Australian residential address and Visa details. Notably, Eddie and Lynn did not need to submit any personal or tax information, making the process straightforward for them.
The money in the bond was invested in growth assets, aiming for capital appreciation through compounding returns, thereby maximising the potential educational fund over time.
As education expenses arise—such as tuition fees, course materials, and other educational costs—Henry makes withdrawals from the bond. Each withdrawal includes a 30% tax offset, significantly reducing the overall tax burden.
The Education Bond proved to be an extremely effective financial tool for Lynn and Eddie. By the time they needed to pay Henry’s school fees, the bond had grown significantly due to the compounded growth of the invested capital. The tax offset on withdrawals further reduced the financial strain, allowing more of the bond’s value to be utilised for Henry’s education expenses.
The simplicity and efficiency of the process meant Henry’s parents could support his education without dealing with complicated tax implications or extensive personal documentation. The ability to withdraw funds at any time also provided them with peace of mind, ensuring they could promptly address any of his educational needs.
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How it works
Start with a $2,000 lump sum, then make ongoing weekly contributions of $38.46 (or $2,000 per year) for 11 years, then stop saving.
2 years later, start withdrawing from the bond to cover education expenses using tax-free proceeds!
For example:
Education Bond Managed Fund Contributions: $22,000 $22,000 Investment Earnings*: $15,239 $22,586 Assessable Tax: $0 -$2,904 Capital Gains Tax Payable**: $0 -$1,935 Tax Credits on Redemption^: $6,500 $0 Total funds available for withdrawal: $43,739 $39,747 Investor is $3,992 better off using an Education Bond
Assumptions:
*Same net return of 7% p.a (after fees) for the bond and the Managed Fund. Education Bond earnings are tax at 30% within the Fund, figures shown are post tax.
**No CGT is payable for the Education Bond. A Managed Fund is subject to 50% discounted capital gains which may reduce the tax payable
^Tax Credits are paid out to Bond holder at time of redemption.
No tax obligations for overseas parents
A combination of disciplined saving and tax-effective investing can help you to support your child through high school and university.
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