Headline returns vs your return
Most investors focus on returns. But what really matters is what you keep after tax. A tax-paid investment could make the difference.
It's tempting for investors to focus on headline returns. But the real measure of investment success is how much of your money remains after tax.
After all, investment performance should be measured by what investors keep rather than what their investments earn before tax.
However, as Generation Life's general manager of product Vincent Stranges explains, "Tax is complicated. Trying to figure out after-tax returns is hard."
'Tax-paid' investments can offer a simple solution.
A clearer tax picture
With the majority of investments, investors receive a return, followed by a statement, and from there they need to decide which boxes to fill in a tax return to report their gains or income.
Tax-paid investments, such as investment bonds (a structure for managing funds) offered by insurance companies such as Generation Life, work differently.
As Stranges explains, "If an investment bond is held for 10 years, there is no income to declare and no personal tax to pay on eligible returns.
"Investors don't even need to report the investment bond in their personal tax return. Generation Life takes care of all the tax payments with our standard tax rate being 30%," he says.
Investors can make early withdrawals before the 10-year mark. In this situation, Stranges says, "We will tell you the tax assessable amount, so there is just one number to fill in on your tax return."
Tax-paid investments just became more compelling
Tax-paid investments have become even more attractive following Federal Budget tax reforms.
From mid-2027, many investors will need to index the value of their assets in line with inflation in order to calculate capital gains tax (CGT). As Stranges notes, "Plenty of investors may get a nasty surprise when they sell investments after July 1, 2027."
It's not just about the hassle of indexation.
From July 1, 2027, CGT will be set at a minimum rate of 30%. This is a key point of difference of investment bonds.
Stranges notes, "Investment bonds are internally taxed at the life company at no more than 30% on eligible returns, so investors know where they stand.
"With other investments 30% is shaping up as the minimum tax rate of CGT."
The power of tax-paid investing
Tax should always be the icing on the cake - not the main driver for investing.
And, as Stranges notes, investment bonds offer plenty of additional upsides.
"Investment bonds can be transferred from one person to another without triggering CGT", he notes. "That's a real advantage when it comes to moving assets around."
There are estate planning benefits, too.
Stranges explains, "Investment bonds have some really neat features, including the ability to control how a bequest is used, for example, by providing beneficiaries with a pre-set withdrawal amount on a regular basis."
How much tax are you paying on investments? By presenting returns on an after-tax basis and incorporating tax-paid investment strategies, Generation Life investment bonds can help investors plan for financial goals with greater clarity.
It could be time to take a closer look at the tax you're paying on investments.
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