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
You don't need to declare on going earnings in your annual tax return.
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.
Education Tax Benefits
This is a special concession under Australian tax law that represents a refund of tax already paid by Futurity on your behalf.
In practice, this means when you make a withdrawal 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 This amounts to an additional $30 for every $70 withdrawn from your investment earnings.
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
A withdrawal of investment earnings for education purposes is not treated as tax assessable for you, the owner of... the EdSaver.
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 minor tax-free threshold is $416.
Other withdrawals
If you withdraw earnings for non-education purposes, investment bond rules apply to that withdrawal. Importantly,... if 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 for investment bond withdrawals below.
Read MoreUnderstanding investment bond rules (non-education withdrawals)
The graphic below illustrates 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 access 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 graphic above) 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 offset on the assessable amount, to compensate for the tax already paid by us on fund earnings.