Tax freeze sparks hot times ahead for bonds
New rules on the taxation of friendly society bonds has created "a window of opportunity" for sales, according to IOOF group taxation manager Tony Jacobs.
The Federal Government has pegged the concessional tax rate at 33 per cent until the business tax reform is completed in 2000-1.
Jacobs says the rate freeze period was due to end on June 30 this year and if no change had been made, the concessional rate would have increased to 39 per cent - the present life company insurance bond tax rate.
Subject to the government accepting the Ralph recommendation on reducing corporation tax to 30 per cent, this will be the rate at which friendly society bonds will be taxed beyond 2001.
The availability of investor tax exemption after 10 years is now to be enshrined in Grandfather rights for the length of the policy, Jacobs says.
This ruling will apply for existing bonds and those taken out before July, 2000. The friendly societies are hoping for a boom in sales of these products during this window.
The government has also allowed bond investors to chose either annual assessment or have the tax reviewed at withdrawal of the bond. This new rule applies for bonds taken out after July 2000.
Jacobs says the rule will enable taxpayers to match any tax liabilities with their particular income- earning situation.
"This could be beneficial for existing bond holders who want this deferral option by switching into a new bond after July next year," he says.
While the friendly societies have come out well from the negotiations on the tax rate, Jacob admits lobbying the state governments to abolish stamp duty on life policies is proving harder. In Victoria the average stamp duty is 0.12 per cent on the initial policy and the rules vary from state to state.
Legislation confirming the 33 per cent tax freeze is expected to be introduced in parliament in late June.
Recommended for you
Clime Investment Management has faced shareholder backlash around “unsatisfactory” financial results and is enacting cost reductions to return the business to profitability by Q1 2025.
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
