Should I invest in an investment bond?

You can think of an insurance bond (also sometimes called an investment bond) as the midpoint between a managed fund and an insurance policy. They are long term investments which can carry attractive tax benefits for some investors. ​

Why would I choose an investment bond? 
The most common aspect of an investment bond is that the company pays for realised capital gains, rather than you. This means that realised capital gains (given the investor meets requirements) are taxed at the company’s tax rate of 30%. It also means that investment earnings are generally not declared in your tax return unless you make a withdrawal in the first 10 years of holding the policy. 

This makes investment bond’s an attractive choice for high income earners, parents saving for their children’s education, or those looking to save for retirement in a non-super environment. 

When can I withdraw it? 
The bond can be withdrawn with no tax payable on capital gains if: 

• The bond has been held for at least 10 consecutive years, and 

• There is no breach of the 125% rule. 

If an investor withdraws funds from the bond within 8 years, the full amount of growth will be included as assessable income. 

• If it is between 8-9 years, only two thirds will be included in the investor's taxable income. 
• If it’s between 9-10 years, only one third is included. 

What is the 125% rule? 
Additional funds can be contributed to the investment bond so long as they do not exceed 125% of the previous year’s contributions. 

For example, if you contribute $100 a month into the bond in one year, you can only contribute up to $125 a month the next year. 

Breaching this rule (contributing more than 125%) will in most cases result in the 10-year tax period resetting. 

What can I invest in? 
Depending on what insurer you use you can generally select from a range of investment options such as Australian Shares, Global Shares, Property, Fixed Income and Cash. 

Does this help with my will or estate planning? 
Having an investment bond can allow for funds to pass outside of your will and legal estate which can be beneficial for blended families as it can reduce potential challenges and claims for the funds. 

Would an investment bond suit me? 
Investment bonds are long term investments and aren’t generally suitable for investors looking to make quick returns. 
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To find out if an investment bond would suit you, feel free to get in touch with one of our advisers. ​