Storm looms over funeral bonds

Friendly societies and funeral directors have joined forces to try and overturn the Treasury ruling taxing funeral and education bonds.

Friendly societies and funeral directors have joined forces to try and overturn the Treasury ruling taxing funeral and education bonds.

Under the Ralph taxation reforms, both of these bonds lost their tax-exempt status for new sales. If the reforms are passed into law, it will be the nail in the coffin of any new funeral or education bonds.

Australian Friendly Societies Association executive director Martyn Pickersgill says he is meeting the Treasurer this week and hoped to convince him of the reason why the tax-exempt status should be retained.

“We are going to argue these funeral bonds are not an investment product, as 90 per cent are sold as part of a pre-paid funeral plan,” he says.

“This move by the government is hitting low-income earners who are planning their funerals.”

According to IOOF group taxation manager Tony Jacob, most people invest in funeral bonds within five years of using them, putting in on average between of between $3000 and the maximum of $5000.

Funeral bonds, which have been sold for more than 100 years, now have about $550 million invested in them.

Jacob argues that taxing the bonds is going to produce very little income for the government.

“If you work on the bonds earning an average of 5 per cent a year, the government may end up collecting hundreds of thousands of dollars in tax rather than millions,” he says.

“Funeral bonds are a product, not an investment, and it will mean many low-income people will be treated very unfairly.”

Australian Funeral Directors Association taxation committee chairman Stephen Parry says the association is supporting the case for returning to tax exemption because of the hardship it will cause in the community.

“People buy funeral bonds for peace of mind, not as an investment product and the government is wrong to label these bonds as investment products,” he says.

Most education bonds are sold through the Australian Scholarship Group which has about 300,000 members throughout the nation.

ASG public relations officer Jack Lloyd says the beneficiaries of the education bonds are the children, not the investors.

“At a time when the government is encouraging parents to invest in education in the private sector, this move is not helpful,” he says.

“Our membership is middle Australia, so our products are not helping the affluent end of society.”

ASG has about $600 million of funds under management with pledges of up to $1 billion. Lloyds says the average investment is about $10,000.

Pickersgill says if the Treasurer won’t listen to their arguments, then he will have no hesitation in approaching the Opposition and the Democrats to get this ruling overturned.