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Restricted by super rules? Tax-advantaged, flexible strategies do exist

Promoted by Centuria Capital Limited.

Super has long been a great way for Australians to save in a tax-effective way, but you may have found that recent changes have made it more limiting for you in this regard. Super remains a primary tool for retirement funding, but given recent restrictions it may be more fruitful to consider supplementing your savings with other strategies. 

While not explicitly positioned that way, the changes to super have more of an impact on Australians with higher balances. Regardless of the number of Australians who actually used the super system in this way, the fact is that the changes (in place for almost a year now) have had the effect of reducing super balances, flexibility and tax-effectiveness.

The changes that are most likely to impact your super balance are as follows:

  1. There is now a limit of $1.6 million which can be transferred into a tax-free retirement account.
  2. Annual concessional (before tax) contribution limits are now $25,000 (down from $35,000).
  3. The annual non-concessional (after tax) contribution limit is now $100,000 (down from $180,000).
  4. Concessional contributions from anyone earning $250,000 or more will be taxed at 30% rather than 15%.

Certainty, flexibility and a structure that has stood the test of time

Investors seeking certainty and flexibility in a tax-effective environment are increasingly considering alternatives outside of super.

There are various options that can assist in minimizing or deferring tax, including creating a private company to hold investments, or forming a family trust – but one of the most tax-effective, flexible and cost-effective options may be an investment bond.

A tax-paid management fund

An investment bond is a structure that has stood the test of time. It is in fact an insurance policy – with a life insured, and a nominated beneficiary – but in reality operates like a tax-paid managed fund.

Limitless initial investment, additional contributions allowed

There is no limit to the amount that can be invested in an investment bond, and a bond can be started with as little as $500. After the initial contribution, additional contributions – of up to 125% of the previous year’s contribution – can be made annually.

A range of underlying investment portfolios

Investors can choose from a range of underlying investment options, depending on their goals. Some are growth-focused, and typically include more equities, whereas others are defensive and invest in cash or fixed interest.

An investment bond is tax-paid, because the earnings from the underlying investment bond are taxed within the bond structure at the company tax rate of 30%. If the bond contains equities, franking credits could further reduce the effective tax rate.

No distributions, no tax return

Returns are re-invested in the bond, and investors do not receive a distribution. This is one of the reasons that investment bonds are so simple and effective. Because investors do not receive a distribution, they do not need to declare the investment bond or the returns from the bond in their personal tax return.

After 10 years, proceeds are tax-free

If funds are left in the investment bond structure for 10 years, all proceeds (from original investment, additional contributions and earnings) are tax-free. The investor does not need to include them in a tax return and at the end of the 10 year period; proceeds can be distributed in a lump sum or as a tax-paid income stream over time.

Flexibility to withdraw at any time

Unlike super, investors can access the funds in their investment bond at any time, although if this happens before 10 years, some tax will be payable depending on when the funds are accessed.

However, because an investment bond is in fact a life insurance policy with a life insured (the life can be that of the bond owner, but doesn’t have to be), on the death of the life insured, the beneficiary of the bond will receive all proceeds of the bond tax-free, regardless of how long the bond has been held.


Despite the fact that super remains the most tax-effective long-term investment structure for most Australians, there are an increasing number of instances where alternatives or complementary tools may have an advantage.

For one thing, super is almost always tied up and inaccessible until the preservation age, which is 55 for investors born before 1 July 1960 and 60 for investors born after this date. In addition, and depending on your balance and how much you earn, you may be prevented from contributing more to super (either in concessional or non-concessional contributions) and your contributions may be taxed at 30%, rather than 15%.

It is in these circumstances that investment bonds really come into their own as an alternative to super. But the reality is that investment bond share suitable for all investors looking for a flexible, tax-advantaged structure that allows them to put money aside (yet access it at any time) for a long-term goal. They have significant benefits when it comes to estate planning, and can be effectively used as a means of leaving money outside of a will.

If you would like to understand more about investment bonds and their uses, please contact Centuria on 1300 505 050

Restricted by super rules? Tax-advantaged, flexible strategies do exist
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