Investment Bonds Flexible, accessible and tax-effective

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1 IOOF WealthBuilder Investment Bonds Flexible, accessible and tax-effective Presented by Graham Smith IOOF WealthBuilder Investment Specialist Disclaimer This document is for financial adviser use only - it is not to be distributed to clients. This presentation has been prepared by IOOF Ltd (ABN ), AFS Licence No (IOOF). IOOF is part of the IOOF group of companies consisting of IOOF Holding Ltd available on our website This presentation is not intended to represent professional investment or taxation advice. Disclosure Statement (PDS) should be obtained and considered before deciding whether to acquire, or to continue to hold, an investment. All assumptions and examples are for illustration purposes only and are based on the continuance of present laws and Past performance is not an indicator of future performance. The information contained in this presentation is given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication. To the extent permitted by law, neither IOOF nor any related body corporate in the IOOF group give any warranty of accuracy, reliability or completeness or accept any responsibility for any errors or omissions, including by reason of negligence. 2

2 What is IOOF WealthBuilder? Lets compare Superannuation Investment bond IOOF WealthBuilder offers advisers strategic financial planning opportunities for: estate planning, wealth creation and tax-effective investing 3 The rules Your investment is always accessible 0-8 years* 8-9 years* 9-10 years* 10+ years* Withdrawals before the eight year anniversary date Withdrawals during the ninth year Withdrawals during the tenth year Withdrawals after the ten year anniversary date Investment earnings are subject to personal income tax. Two thirds of investment earnings are subject to personal income tax at tax rate. One third of investment earnings are subject to personal income tax at tax rate. There is no personal income tax liability for withdrawals made after the end of the tenth year from the start date. A 30 per cent tax offset applies to cover the tax already paid within the investment bond. *From the start date for tax purposes 4

3 The rules 125 per cent rule y y x 125% Maximum To contributions avoid triggering in any a restart one anniversary of the ten year tax is 125 period cent simply of the start investment a new bond. in the previous year. Previous year investment One year anniversary maximum contribution 5 A solution for all stages Investor life cycle Wealth accumulation Retirement Intergenerational wealth transfer Retire Accumulating assets Non-concessional into super Reducing taxes and levies Home deposit Gearing Income stream Estate planning Education Savings plans Legacy to grandchildren Age 6

4 The strategic opportunities Tax effective investing $ Wealth creation $ Estate planning Small business strategies Home care packages Education savings 7 Tax effectiveness Investor need: To develop a tax effective strategy to cater for a taxable income greater than 30 per cent. 8

5 Tax effectiveness Key benefits of using the bond Tax paid no assessable income. Still benefit from franked dividends. After the ten year tax period, no assessable income on withdrawals. No taxes or duty when transferring to children. If withdrawn before ten years investors get an offset for the tax already paid within the investment. No capital gains tax upon realisation, after ten years from the start date, or when switching between investment options. Maximum tax rate of 30 per cent within the bond. Generally protected from creditors. 9 Tax effectiveness Case study: John, aged 40, is on the top MTR and has no non deductible debt. He received a lump sum inheritance of $250,000 and is prepared to invest for 15 years. John also wishes to invest an additional $15,000 annually and is after a tax-effective solution; but also wants the ability to redeem funds if he wishes. Investment options Investment bond Portfolio value net of tax after 15 years $1,067,089 Managed fund $1,013,678 Difference $53,411 $53k higher return with an investment bond Calculation assumptions: Both investments earn eight per cent pa return (net of fees) being four per cent growth and four per cent income and the regular savings plan of $15,000 is not indexed with inflation. The level of franking credits for both portfolios is 100 per cent. John pays personal tax on investment earnings from the managed fund each year at his marginal tax rate of 45 per cent (plus Medicare levy of two per cent which applies from 1 July 2014). The tax rate for capital gains tax purposes is 45 per cent (plus Medicare levy of two per cent which applies from 1 July 2014). Investment earnings (including accrued capital gains) are taxed at a maximum of 30 per cent within the investment bond. No personal income tax is payable upon withdrawal from the investment bond due to the ten year tax rule. 10

6 Tax effectiveness Case study: Commonwealth Seniors Health Card Other benefits based on taxable income Family Tax Benefit A and B Child Care Benefit Newborn supplement and newborn upfront payments Division 293 tax HECS/HELP repayment rates Youth Allowance Senior Australians and pensioner tax offset Child Support and Medicare Levy Surcharge Private Health Rebate. 11 Wealth accumulation Investor need: Flexibility no work tests or contribution caps can accept lump sums can switch between options at no penalty Accessibility to funds Defined savings goals Saving for a particular event Concerned with early retirement strategies 12

7 Wealth accumulation Case studies: Tax effective investing in nonsuperannuation structure. Utilising a loan facility. 13 Estate planning Investor need: Case studies: Concerned with efficient and effective transference of wealth. Blended families. Superannuation/Account based pensions with non reversionary beneficiaries. Unlike superannuation, the proceeds from an investment bond can go to any nominated beneficiaries regardless of the relationship. its passed to them free of personal tax liability. 14

8 Loan facility Use the tax efficiency of the bond structure to complement a gearing strategy and accelerate the earnings potential. WealthBuilder investment bond for the original investment. Up to 90 per cent of the investment value is available for loan (depending on fund option). Competitive interest rates (generally lower than offered by margin lending facilities), and currently no loan fees. Two loan interest rate options: fixed or variable. An investment bond provides a unique opportunity as part of a gearing strategy to accumulate wealth. Superannuation used for gearing purposes. 15 Why IOOF WealthBuilder? Comprehensive range of investment options Pioneers of the investment bond When you are there's considering a reason our investment bond bonds, has led you the should way since consider IOOF Low investment minimums Unique loan facility Flexibility on entry and exit 16

9 Support 1 Quarterly adviser updates including strategies for consideration. 2 Client facing fact sheets and other investment bond collateral Strategy booklet Access to premier technical services offering. Both client and separate adviser websites with easy ordering functionality. 6 7 Quarterly performance reporting Access to specialists. 17 Something to think about? When super is not an option Do you have clients with large trusts? Blended families how to isolate funds? Ruling from the grave estate planning made easy If the money you are looking at is non superannuation money, and you need a tax effective structure then the answer may be an investment bond. 18

10 For more information Visit our website, Where you will find the PDS, together with a host of other information for your perusal. If you would like to arrange an appointment, please do not hesitate to contact me directly. Graham Smith IOOF WealthBuilder Investment Specialist graham.smith@ioof.com.au Telephone Mobile Thank you 20