Despite a recommendation in the Ralph Report, the Federal Government has decided to allow the current taxation of life insurance bonds to remain as it is – and that’s good news for the industry. Life bonds are effectively investments offered by life insurance companies and friendly societies. As long as they are held for at least 10 years, they are completely tax free to the investor.

Deloitte Touche Tohmatsu insurance partner Peter Kennedy said implementation of the Ralph Report recommendation would have resulted in investors paying tax at their marginal rate on investment income from life bonds.

“Bonds will now be tax-free in the hands of the investor, with the life insurance company paying tax on the investment accruing on the bond. However, the rate of tax is only 30%, compared to the highest marginal tax rate of 48.5% for an investor making a typical investment.”

This will make life bonds “highly attractive” for people on high incomes. “It represents an effective doubling of the tax benefit compared with the situation less than two years ago when tax of 39% was paid on income accruing on bonds,” he said.