Portfolio Bonds & PPLI

Key Benefits for Australia

• Tax-deferred investment growth

• Efficient estate planning

• Control over the timing of tax events

• Gross fund roll-up (generally no tax on investment gains inside the wrapper)

• Tax-free withdrawals after 10 years if certain rules are met

• Wide range of investment options such as funds, equities, ETFs

• Can be assigned or inherited to provide certain tax planning benefits

Why Consider This as an Australian or Future Australian Tax Resident?

Offshore bonds are attractive due to Section 26AH of the Australian Income Tax Assessment Act 1936, which offers favourable treatment for “eligible policies.”

If certain conditions are met, investment gains from such a policy can be withdrawn entirely tax-free after 10 years, even if you are or become an Australian tax resident.

The 10-Year Tax Rule in Australia

Rules for Top-Ups: The 125% Contribution Rule

To maintain tax-free status:

• Any year’s contribution or top up to the account must not exceed 125% of the previous year’s contribution

• If exceeded, the 10-year tax-free clock starts over from that point

Onshore v Offshore Bonds:

Investment bonds issued by Australian providers are usually taxed at the corporate rate of 30% before earnings are reinvested.

For Australian residents with a marginal tax rate above 30%, these onshore bonds can be a relatively tax-efficient way to invest long term.

However, if you have the ability to access offshore investment bonds through a tax-neutral jurisdiction, such as Hong Kong the benefits can be significantly greater.

Offshore bonds grow free from Australian tax while invested  (a feature known as gross fund roll-up) allowing compounding returns to accumulate without annual tax drag.

This makes offshore bonds a powerful structure for long-term investors, especially those planning to move to or retire in Australia.

Tax Efficiencies Compared: Onshore v Offshore Bonds

Feature	Onshore Bond	Offshore Bond
Tax on Investment Growth	30% corporate tax	0% (gross roll-up)
10-Year Rule Applies	Yes	Yes
Flexibility in Assets and Currency	Limited	Broad and multi-currency
Tax-Free Switching of Assets	Yes	Yes

Example

Two investors each contribute AUD 200,000 and earn 7% annual returns:

After 10 years: Offshore investor outperforms by AUD 70,740

After 20 years: Offshore investor outperforms by AUD 253,294

This advantage comes from the gross fund roll-up effect of the offshore bond.

Flexibility and Access

• You can set up regular withdrawals, ad hoc redemptions, or fully surrender the plan

• You control when tax events occur

• Withdrawals after year 10 are completely tax-free in Australia

Generational Wealth Planning

• Passing on the Tax Benefits:  Through having multiple lives assured the portfolio bond can be passed  on and the tax advantages for Australia potentially inherited along with the value of the assets.

• Bypassing probate: Assets held in an offshore portfolio bond can often be transferred to beneficiaries without going through the probate process, reducing delays and administrative costs in Australia.

• Simplified estate settlement: The structure allows for direct assignment to heirs, streamlining the transfer of wealth and minimizing legal complexities.

Want More Information?

Speak with a licensed adviser who specialises in Australian tax and cross-border planning to explore if an offshore investment bond is right for you.