An insurance bond might help with meeting income-related thresholds for some government benefits. But bond alone ownership cannot increase eligibility for the Age Pension.
When a person directly owns insurance bonds (including the AUSTOCK Imputation Bond), they are treated as “financial assets” and will count as an asset under the assets test and deemed to earn income under the income test.
Typically “deemed” income applies whereby Government prescribed deeming rates are multiplied by the value of an investment to determine its “deemed” income, instead of its “actual” income. This applies to most financial investments such as cash, term deposits and shares – and from January 2015 to account-based superannuation pensions.
As such, although an insurance bond may assist with not infringing income-related thresholds for some government benefits, Bond ownership alone cannot increase your eligibility for the age pension.
Imputation bonds held inside private trusts
Where a financial investment is held within a private trust (such as a family or discretionary trust), it is the “actual” or ordinary income of the trust that is assessed under the income test.
Insurance bonds do not distribute income (or capital gains) and, when held within a “designated private trust”, are assessed by Centrelink and the Department for Veterans Affairs on an “actual” rather than “deemed” income basis. So although an insurance bond held within a trust continues to be assets-tested, it is income tested only if and when a withdrawal takes place.
Qualifying for government benefits and rebates
During an insurance bond’s accumulation growth phase, its investment returns do not add to a person’s taxable income. As such, a bond investment can assist in controlling and lowering the level of taxable income during the accumulation years.
Therefore, an insurance bond can assist in not infringing income thresholds for various government welfare benefits. These could include the Commonwealth Seniors Health Card, HECS/HELP student loan repayment thresholds, Study Assistance, Parenting Allowances, Family Tax Payments (Part A and B) superannuation co-contributions, and qualifying for tax offsets, such as the Low Income Tax Offset and Senior Australians Tax Offset.
Home and residential aged care strategies
Eligibility for various Government income support payments, and also determination of the level of a person’s residential aged care fees and home care fees are subject to an income test and (with aged care fees) also an assets test.
Indeed, those planning or about to enter a residential aged care facility (and possibly restructuring their assets, including the sale of the family home) could be concerned about being adversely affected by either, or both of these tests. These tests could potentially:
- reduce their pension entitlement;
- increase their daily fee for residential aged care; or
- increase their cost for home care.
By holding some of their investments in an insurance bond in a designated private trust, may assist their situation by “quarantining” income from the income test, and bring about reduced care fees and improved pension entitlements.
Richard Atkinson
Head of IFA Product and Relationships
Austock Life Limited
03 8601 2095
0417 541 897
RAtkinson@austock.com
www.austocklife.com