![Looking for investment vehicles outside of super? Then start here.](/content/dam/images/g/q/p/x/f/o/image.related.afrArticleLead.620x350.gqlar2.png/1471580449091.jpg)
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Kate McCallum, director, Multiforte
Tax should not be a driver of investment decisions, however if you are considering alternatives to superannuation, an investment company is one option. It can be beneficial for investors on a high marginal tax rate, particularly where they don't have family members on lower marginal tax rates, where a family trust may work.
Income and capital gains are taxed at a flat tax rate of 30 per cent, however investment companies do not attract the 50 per cent discount on capital gains, which is why we avoid holding capital growth assets in a company structure. Earnings can be reinvested, enabling the investor to defer receiving income from the company – and paying your personal marginal tax rate.
Neil Rogan, general manager of the investment bond division at Centuria Capital
Investment bonds, also known as insurance bonds, are suited to people with a long-term investment horizon wanting a flexible, simple and tax-effective solution. Similar to managed funds, they offer a range of asset classes. And like super, tax is paid within the investment structure, in this case at the corporate rate of up to 30 per cent. Franking credits and tax deductions can further reduce the effective tax rate.
Investment bonds have some attractive features: there is no limit on the initial contribution and additional contributions of up to 125 per cent of the previous year's contribution can be made. After having invested for 10 years there is no personal tax paid on withdrawals.
Chris Morcom, director, Hewison Private Wealth
Family trusts, which give flexibility around cash flow and tax planning, as well as asset protection and estate planning, are well worth considering. They work best for professionals such as doctors and accountants, business owners and those with significant assets who require flexibility in estate planning.
Family trusts have the benefit of being able to distribute income each year to family members who are on a lower tax rate, thereby lowering the family's overall tax rate. But you need advice around setting one up and ensuring it is being run properly. You should have your accountant, financial planner and lawyer working together. It is important that all three of them know the strategy.
Scott Farmer, managing director, Bravium
If you are looking to replace the tax benefits lost with the potential changes to the super rules, negative gearing could be one of those avenues. Gearing magnifies the return generated by your assets, then you get the benefits of the tax concessions from the negative gearing and capital gains tax rules.
If you hold onto an asset for longer than 12 months, the capital gain is taxed at a 50 per cent discount to your marginal tax rate. The longer you run the strategy, the better but that is no different to super, which is also a long-term strategy, so you are not losing anything.
I much prefer buying a house and land rather than a strata property. Major centres represent lower risk than regional or rural areas.
Suzanne Haddan, managing director, BFG Financial Services
Insurance bonds have been sidelined in recent years but appear increasingly attractive. The tax rate applied to the earnings is a maximum of 30 per cent and funds can be withdrawn, with no tax payable after 10 years.
Unlike super, you can withdraw your funds at any time before the 10 years, and though part or all of the earnings will be taxable, you will receive a 30 per cent tax rebate on any assessable income. There is a diverse range of managed funds for the investor to select from and you can change your manager any time.
From an estate planning perspective, insurance bonds have some neat wealth transfer options and in some cases the insurance bond will fund you a loan.