The smart choice for tax effective investing in Education Bonds.
Education often ends up costing much more than we first anticipate. So, when considering effective tax planning for individuals and families, it’s worth exploring the education funds with tax benefits on offer. A Futurity Education Bond shakes up the notion that taxes are inevitable and provides a tax effective investment choice to keep more money going where it should be - to your child’s education.
Education bonds are unique from other forms of investment as they offer a variety of tax benefits which can make them a great choice for tax effective investing. Let’s take a look at what makes Futurity Education Bonds effective in tax planning for individuals and families, and why they’re a popular option for saving to fund education costs.
Lower tax rates
Due to our unique structure, we pay tax on your behalf on the bond’s ongoing investment earnings at a tax rate of... up to 30%. This may be particularly appealing to those on a higher personal tax rate, as you could otherwise be attracting a personal tax rate of up to 47% (including Medicare Levy) on earnings generated from most other investments.
Also, you don’t need to declare these ongoing earnings in your annual tax return.
Education benefits
When you make a withdrawal from your Education Bond for the purpose of funding education costs, you’ll enjoy the... Education Tax Benefit. This amounts to an additional $30 for every $70 withdrawn from your investment earnings, when paid as education benefits.
The Education Tax Benefit is a special concession in tax law that is intended to recoup the fund tax already paid by us. This means education costs funded from investment earnings in your Bond are effectively paid at pre-tax value.
Compounding power
Because all investment growth is automatically reinvested you’ll increase the powerful compounding benefits of tax... effective investing within the lower tax environment.
Read MoreBeneficiary income
As a parent or grandparent who holds a Bond for the purpose of funding a child or grandchild’s education, the... withdrawn income is not treated as assessable in your hands.
Instead, the income will be reported as assessable for the nominated student beneficiary, and they may pay little or even no tax on the assessable amount if their taxable income is below their tax free threshold.
Note: the current marginal tax rate for minors is $416.
Tax-free withdrawal
If you withdraw earnings for non-education purposes, and you have held your Bond for more than 10 years since the... first contribution, you will generally receive a tax-free withdrawal. We explain the rules around investment bond withdrawals below.
Read MoreUnderstanding investment bond rules
The graph below demonstrates the special tax rules that apply for education bonds if you happen to withdraw your investment earnings for something other than to fund education costs.
If you receive any investment earnings after 10 years from the date of your initial contribution, and you also satisfy the 125 percent rule, the amount you receive will be tax free in your hands.
The 125 percent rule allows you to make additional contributions to your Bond each year, provided they’re not more than 125 percent of the previous Bond year’s total contributions. Of course, you may make unlimited contributions in your Bond’s first year.
If you withdraw investment earnings within the 10 year period, an apportioned amount (refer to graph) will count as part of your assessable income and be subject to tax at your marginal tax rate (MTR). But the good news is you will be entitled to receive a 30 percent tax rebate on the assessable amount, to compensate for the tax already paid by us on fund earnings.