Singapore is home to many Australian expatriates who intend to return to (or other nationals who intend to move to) Australia. In most cases, restructuring personal assets in advance, whilst still an expat, can provide substantial tax advantages if an individual eventually become tax resident in Australia. Life assurance policies, in particular, offer considerable benefits in respect of holding either business or personal assets.

Overview

A Personal Portfolio Bond (PPB) is a type of financial product that is designed with reference to the UK tax rules and which is sold in many overseas jurisdictions around the world. An offshore PPB is a single or regular premium investment vehicle which provides expatriate investors with the flexibility of creating and managing a portfolio of assets in a single tax efficient and flexible structure.

A PPB is defined as ‘A policy of life insurance, contract for a life annuity or capital redemption policy.

A PPB is utilised as an investment platform that allows greater investment flexibility and a higher degree of portfolio customisation. It allows the investor to access:

• any offshore or mutual fund agreed by
• stocks and shares or fixed interest securities quoted on recognised stock exchanges
• bonds and multi-currency deposits
• alternative investments – for example hedge funds, structured notes and
• exchange trade funds.

Current Australian tax treatment

When the FIF rules were repealed in 2009, the old draconian approach PPBs was not replaced with a new tax regime. In the absence of special rules applying to foreign life policies, section 26AH of the Australian Income Tax Act applied by default.

Section 26AH provides for the taxation of bonuses when received by a policyholder. The meaning of ‘bonus’ is not actually defined in the Tax Act, but in IT 2346, the Tax Office explains that for investment unit linked policies, the profit derived on the sale of units is, when paid to the policyholder, to be regarded as a bonus payment.

The gain or surrender or partial withdrawal is therefore a ‘bonus’ payment from a foreign unit linked single premium or regular premium policy.

10-year rule

If a policy has made an investment gain and is held for ten years or more, any gain made on surrender or maturity may be disregarded if the beneficiary (i) is the original beneficial owner of the policy; or (ii) acquired the interest in the policy for no consideration.

The holding period includes when the policyholder was a not tax resident of Australia.

In accordance with Section 26AH (6) ITAA 1936, the policyholder will be assessed for income tax on chargeable bonuses arising during the eligible period as follows:

• Within 8 years – The full gain is included as assessable income and taxed at the policyholder’s marginal rate.
• During the 9th year – Two thirds of the gain is included as assessable income and taxed at the policyholder’s marginal rate
• During the 10th year – One third of the gain is included as assessable income and taxed at the policyholder’s margin rate
• After 10 years – The whole gain does not have to be included as assessable income under Section 26AH.

Why would the Australian Government allow investments held for 10 years or more to go untaxed in Australia? The answer to that question is that Section 26 AH is targeted at Australian insurance bonds where the product provider has paid tax at the company tax rate (currently 30%) on the earnings derived on the investments held within the insurance bond. The products are therefore considered a ‘tax paid’ investment to the policy owner when the bond runs for 10 years or more.

Given that the operators of foreign life policies are not paying Australian tax on earnings within PPBs – because they do not operate in Australia – they are not exposed to Australian company tax. These types of policies are not available to investors who are based in Australia.

Investors can still have access to the money before 10 years but there may be a tax liability on growth if withdrawals are made before 10 years if they are tax resident in Australia.

If you would like information on any of the above areas or any other area of financial planning, please contact.
Matt Baker, Managing Director, Singapore Expat Advisory
Email: advice@sinaporeexpatadvisory.com
Tel/Whatsapp Business +65 9432 8781
www.singaporeexpatadvisory.com

Singapore Expat Advisory is an agency for Promiseland Pte. Ltd and are authorised and regulated by the Monetary Authority of Singapore (MAS).
General Information Only This article should not be construed as an offer, solicitation of an offer, or a recommendation to transact in any products (including funds, stocks) mentioned herein. The information does not take into account the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a licensed financial adviser regarding the suitability of the investment. This article has not been reviewed by the MAS