Australian Expatriates Turn to Offshore Investment Bonds
9 May, 2018
The Perfect Savings and Investment Vehicle for Australian Expatriates living in Singapore
With the changes in tax treatment for Foreign Investors it is no wonder why Australian Expatriates are seeking alternative ways to invest their savings offshore rather than sending their money home. Pay your mortgage off and you will face a 32.5% income tax on your surplus rental income. Use an Australian Bank Account or Term Deposit and you will lose 10% of your interest to Withholding Tax.
Thankfully living in Singapore can open up a wide range of tax-efficient investment opportunities and one of those opportunities is called Investment Bonds.
What is an Investment Bond?
Offshore Investment Bonds are highly tax efficient structures that can help Australian Expatriates minimize tax should they decide to return home in the near or distant future. Just like Super or unit trusts an investment bond is a structure that has its own set of rules.
How it works:
John lives in Singapore and decides to save $2,000 per month into an offshore Investment Bond which holds several Managed Funds. Five years later John returns home to Australia and then makes the decision to switch his existing managed funds into a more conservative blue-chip Fund. Usually, a switch of this nature or change in ownership of such units should result in a personal CGT liability, however, switching between investment funds within an investment bond does not result in a personal CGT liability.
In addition, ten years after the commencement of an investment bond, all proceeds will generally be available without any additional tax liability. This means that John may be able to draw down or surrender his policy 5 years after returning home to Australia without suffering a tax liability on the growth of his investment. The tax savings that John will make on his investment can be quite significant.
Withdrawal Tax Rates. See table below:
| Year | Tax Outcome |
|---|---|
| 8th year or earlier | 100% of earnings assessed at individual’s marginal tax rate (MTR) |
| 9th year | 2/3 of earnings assessed at individual’s MTR |
| 10th year | 1/3 of earnings assessed at individual’s MTR |
| After 10th year | No additional tax payable on earnings |
Not only is there no limit on the amount John can invest in an Investment Bond (Unlike Super) but John’s funds may be accessible at any time. Investment bonds are also especially good for estate planning as they sit outside the will and cannot be challenged.
Investment bonds are proving to be the perfect savings and investment vehicle for Australian Expatriates living in Singapore but like all investments, it is crucial that you seek professional advice before making any investment decision.
Complete form for a complimentary consultation with our Australian Specialist to learn more.
Nothing on this website should be considered financial advice of any kind. Please consult your professional adviser before making any investment decision. Any content on this site relating to tax matters is for general information only, may not be up to date, and should not be considered tax advice of any kind.
