- Parents/grandparents – plan for CPI+ growth investment returns to pay 2014 school fees
- Reduce the 2014 fee ‘shock’ when private schools announce fee rise
MELBOURNE December 2013 – Private high school fees are set to rise at least 6 per cent next month, prompting parents and grandparents to invest in a unique Australian innovation which is tax-paid and an easily manageable “targeted purpose” investment. This has been the average level of private school fee growth over a long period in Australia.
Austock Life’s managing director Ross Higgins – designer of Austock’s ChildBuilder Bonds* – says the product combines the tax benefits of an insurance bond with 28 investment portfolios.
Higgins gives the example of an Austock Life investor Charles who, as a grandfather wants to help with the private education costs of his newborn grand-daughter, Bethany when she starts high school in about 10 years’ time.
Charles decides to set-up a ChildBuilder by investing $10,000 and adding $2,500 each year and he chooses three Australian share-based options from the bond’s menu of 28 options.
Based on an average 8% after tax rate of return (net of fees) and after Austock Life meets annual portfolio tax estimated to average 26% p.a, Charles calculates when Bethany’s turns 10 and is ready for high school, the $10,000 initial and $2,500 p.a. added to ChildBuilder should have an estimated worth of $49,385.
This investment result assumes that Charles will not make any withdrawals from the bond – even though before it vests to Bethany he is allowed to do this, and even for Charles’s own purposes.
The bond as a ‘set-and-forget’ investment appeals to Charles because he does not want worry about tax reporting, nor have to do any administration or compliance. Charles also likes ChildBuilder because it is a simple, self-contained structure to help his grandchildren, as against setting up a complicated (and expensive) discretionary trust. ChildBuilder is also a way to meet many financial objectives for children, other than just the education funding challenge. These include as a dedicated investment for a child’s financial head start with a first home deposit, a first car, overseas travel, wedding expenses, starting a family or a business etc.
The bond remains in Charles’ name and under his control until it reaches its vesting date, which Charles sets as Bethany’s 21st birthday. At this time, the Bond and any any balance not been spent on Bethany’s education (or by Charles) automatically passes to her and it becomes her investment.
Because Charles is in the 46.5% MTR band, over the pre-vesting period when ChildBuilder is in his name (and can be accessed by him) he enjoys personal tax ‘arbitrage’ advantages due to his high MTR exceeding the range of portfolio tax rates that applies to Austock Life at investment portfolio level.
These rates are usually less than 30% for most investment portfolios, and can go as low as 21%.
The estimated effective portfolio tax rate ranges for Australian shares – Charles’ choice of portfolios –is from 23% to 27%. The benefit of these lower effective tax rates translates to higher unit prices and improved performance.
Throughout ChildBuilder’s term, all tax is paid by Austock and all investment earnings compound inside the bond’s tax-paid environment. During the first 10 years, there is tax-paid investment growth during accumulation and the benefits of a 30% tax offset on withdrawals.
After 10 years, there is tax-free access to bond proceeds, including investment growth. At any stage of ChildBuilder, switching amongst the product’s 28 investment portfolios can be done without personal tax or capital gains tax and there are no personal tax-reporting obligations whilst accumulating.
* ChildBuilder is an investment-linked life insurance contract (or bond) and a modernisation of a traditional type of contract also known as a Child Advancement Policy. It is governed by product rules, which are APRA-approved rules under the Life Act.)
contact
Ross Higgins
Austock Life
managing director
03 8601 2056 or 0407 567774
life@austocklife.com
Christopher Hocking
0418 603 694
chris@chstrategies.com.au
chstrategies.com.au
Twitter: CH_Strategies