Positive Advantages of Offshore Bonds for Australians

 

Our understanding is that in Australia, there is no specific legislation currently in place to deal with foreign life assurance policies (assuming that the Personal Portfolio Bond has been written on a Life Assurance Basis).

 

They were caught under the foreign investment fund rules until a few years ago but these rules were repealed and replaced by new anti-avoidance provisions. As of yet, the Australian Tax Office haven’t introduced any new rules specific to foreign life policies and as such, some tax specialists are trying to link them to the closest thing possible which are local policies.

 

The general consensus from Australian tax specialists is that a life assurance policy is free of tax providing it has been held for 10 years or more. If it isn’t held for 10 years then any gain is taxed proportionately depending on how long they have actually held it.  This only applies to life assurance policies and not Capital Redemption policies.

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The holding period includes when the policyholder was a non-Australian resident.

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In accordance with Section 26AH (6) ITAA 1936, the policyholder will be assessed for income tax on chargeable bonuses arising during the eligible period as follows:

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Within 8 years – The full gain is included as assessable income and taxed at the policyholder’s marginal rate

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During the 9th year – Two thirds of the gain is included as assessable income and taxed at the policyholder’s marginal rate

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During the 10th year – One third of the gain is included as assessable income and taxed at the policyholder’s margin rate

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After 10 years – The whole gain does not have to be included as assessable income under Section 26AH

 

 

* The above is for information purposes only and should not be consider financial or taxation advice.