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I read an article on investment bonds for retirees. I'd appreciate your advice on which bonds meet the 30 per cent tax rebate and whether Commonwealth bonds meet the criteria?

By InvestSMART · 27 Oct 2012

By InvestSMART ·
27 Oct 2012

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I read an article on investment bonds for retirees. I'd appreciate your advice on which bonds meet the 30 per cent tax rebate and whether Commonwealth bonds meet the criteria?

All investment bonds are eligible for the 30 per cent tax rebate. These are tax-paid managed funds, like super, and are different from Commonwealth bonds, which are a fixed-income security. Being a retiree, get advice before placing funds into investment bonds, as doing so may put you at a disadvantage for tax purposes. This is because most retirees don't pay tax. A benefit of investment bonds for retirees is they cannot be challenged under your will. They are ideal for estate planning.

We want to sell our unit worth $440,000, then pay off the mortgage and debts. Our idea is to save as much as we can to buy a house in two or three years' time. Meanwhile, we are thinking of renting. What do you think about our plans? If we keep $40,000 in our bank account what happens with the tax?

Your strategy will cost you at least $50,000 in changeover costs but if your heart is set on living in a house, and not a unit, there is no reason why you should not bite the bullet now. The best place for your savings would be a high-interest online account the interest will be taxable but will not have much impact on your tax position due to the current low interest rates. Keep it in the name of the lowest income earner to minimise the small amount of tax payable.

Noel Whittaker is the author of Making Money Made Simple. His advice is general and readers should seek their own professional advice before making decisions. Email noelwhit@gmail.com.

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Frequently Asked Questions about this Article…

Are investment bonds eligible for the 30 per cent tax rebate for retirees?

Yes. According to the article, all investment bonds are eligible for the 30 per cent tax rebate. Investment bonds are tax-paid managed funds (similar to super) and qualify for this rebate.

Do Commonwealth bonds meet the 30 per cent tax rebate criteria like investment bonds?

No. The article notes Commonwealth bonds are a fixed-income security and are different from investment bonds. They are not the same product as tax-paid managed investment bonds that attract the 30 per cent rebate.

Should retirees automatically move money into investment bonds to get the tax rebate?

Not necessarily. The article advises retirees to get professional advice before placing funds into investment bonds, because many retirees don’t pay tax and moving money into investment bonds could disadvantage your tax position.

Are there estate-planning benefits to using investment bonds for retirees?

Yes. A benefit highlighted in the article is that investment bonds cannot be challenged under your will, making them useful for estate planning.

If we sell our $440,000 unit and plan to buy a house in 2–3 years, what costs should we expect and is renting in the meantime sensible?

The article estimates at least $50,000 in changeover costs when selling and moving toward buying a house. If you’re set on living in a house rather than a unit, the author suggests proceeding despite the costs, and renting in the meantime can be a reasonable interim plan.

Where should we keep savings of about $40,000 while saving to buy a house in a few years?

The article recommends a high-interest online account as the best place for short-term savings. Interest will be taxable, but with current low interest rates it likely won’t have much impact on your tax position.

Will interest on short-term savings be taxed, and can account ownership affect how much tax we pay?

Yes—interest earned in a bank account is taxable. The article suggests keeping the account in the name of the lowest income earner to minimise the small amount of tax payable on that interest.

Who provided this advice and should I act on it without talking to a professional?

The advice comes from Noel Whittaker, author of Making Money Made Simple. The article states the advice is general and recommends readers seek their own professional advice before making financial decisions. (Contact given in the article: noelwhit@gmail.com.)