Tax consideration- AFIC DSSP vs Investment Bonds

Discussion in 'Shares & Funds' started by mr_alex, 9th Jun, 2020.

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  1. mr_alex

    mr_alex Well-Known Member

    28th Jan, 2017
    Gold Coast
    Looking at both of these to hold for 20yrs+ and create an income stream whilst not touching the capital.
    I like to compare these options and more so look at how the tax works with the DSSP and investment bonds.

    From my understanding:
    Both Afic dssp and investment bonds-
    do not need to declare anything in tax returns
    IB- taxed internally at 30%
    Dssp- I think still taxed internally at 30%?
    IB- after 10yrs withdrawals are tax free (I think they must still be taxed at 30% internally?)
    Dssp- I can switch off dssp and realise gains for an income stream and take advantage of franking credits.

    Disregarding performance and fees, is there a clear winner tax wise?
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

    9th Jun, 2006
    Australia wide
    mr_alex likes this.
  3. MB18

    MB18 Well-Known Member

    25th Sep, 2018
    I have looked at both in the past and despite being in the top marginal tax bracket neither appealed, especially the investment bonds.

    I forget exactly why but I have a feeling that for the investment bonds it could have been the fact that the management fees and lack of CGT discount didnt really go far enough to beat just paying the tax on earnings, minimal management fees, flexibility, and (possibly) CGT benefits of just holding a low cost ETF.

    Similar to the DSSP although that more centered around perceived underperformance of the LIC relative to the index and the trust vs company structure of an index fund, of which I prefer the latter.

    Each back of the envelope calculate required a few assumptions, including faith in the CGT discount remaining long term.

    In the end, the results were so close I decided to stay away from them, pay the tax man, and enjoy the flexibility of being able to sell for unforeseen reasons without penalty.
    I think if the benefits of IB and DSSPs were that great the ATO would be all over it.

    I dont work in tax so @Terry_w will be more upto speed
    Last edited: 26th Jun, 2020
    Redwing likes this.