Melissa’s father passed away leaving her a large inheritance. She was able to pay off her debts and max out her superannuation contribution caps.

She put a further $250,000 into a Foresters Financial Investment Bond.

She also made additional contributions of surplus cash to her Investment Bond (subject to the 125% Contribution Rule).

As sustainable investing was incredibly important to her, Melissa was able to choose to invest it in the Sustainable investment option.  She also had the flexibility to change her underlying investment allocations in accordance with her changing risk tolerances and preferences.  No Capital Gains Tax (CGT) is incurred for switching investment options to rebalance your investment mix or upon withdrawal after 10 years (if the 125% Contribution Rule is met).

Investment bonds have a maximum tax rate of 30% on earnings in the bond paid at a fund level, so Melissa (who had a higher applicable marginal tax rate) was able to invest and build wealth without increasing or adding to her personal income tax liabilities.  Melissa was a long-term investor, so she knew that if she held the Foresters Financial Investment Bond for 10 years and met the 125% contribution rule, she would be able to access the funds as a tax-free lump sum or via tax-free regular withdrawals without any CGT or personal income tax implications.  Melissa was excited to know her bond could be used to provide her with a tax-free income stream when she reached 56 (even though her preservation age was 60)!

As a high-income earner, Melissa was pleased to learn that the earnings from her Investment Bond was not declarable on her tax return (unless she withdrew under the 10-year mark).  Accessing a bond before the 10-year mark is possible, as long as she considered the tax implications in doing so.

As Melissa had children from both a current and a previous relationship, she also had piece of mind in the fact that she can nominate a beneficiary or beneficiaries (either dependant or non-dependant) and they can receive the funds in the event of her passing tax-free.  And that the funds received from the Investment Bond by her beneficiaries cannot be contested as it is a non-estate asset.

125% Contribution Rule: Your investment bond is designed to be held for 10 years to be the most tax effective. In the first year of your bond there is no limit on how much you can contribute. From the second bond year onwards your contributions cannot exceed 125% of the previous years contributions. If you contribute more than 125% of your previous year’s contributions, the start date of the 10 Year Tax Rule will be reset for tax purposes.

10 Year Tax Rule: The 10 Year Tax Rule is a tax incentive specific to an investment bond that allows income in the Fund to be taxed at the ordinary life insurance business (‘Business’) tax rate (currently 30%) and paid for by the issuer. As an investor, you do not need to declare any income accrued on your investment in your tax return or keep any capital gains records whilst invested in the Fund. When you make a withdrawal from the fund after 10 years, income on your withdrawal is not assessable income and therefore does not need to be declared on your personal income tax return.

The information provided in this scenario does not constitute financial product advice. The information is of a general nature and does not consider your individual objectives, financial situation or needs. Please consider the information contained in the Product Disclosure Statement and Target Market Determination before deciding to acquire the products. Please obtain independent professional advice before making any decisions. Financial services are provided by Foresters Financial Limited (ABN 27 087 648 842, AFS Licence No. 241421). Past performance information is not a reliable indicator of future performance.

Grow your wealth,
consolidate your legacy