New Zealand Superannuation Trusts (schemes) and Insurance Bonds

There are some differences in the way superannuation trusts and insurance bonds are treated for tax purposes but from a practical investor’s perspective they can be regarded as having similar outcomes.

These funds pay tax (or rather the insurance company or super trust pays the tax) at the rate of 33%. This applies to all income, realised and unrealised capital gains received by the fund.

For New Zealand resident investors this is a FINAL tax. ie. returns received by the investor are tax paid and no further tax is payable. Neither is there a credit issued for the tax paid by the fund. If your marginal tax is at the same rate as the fund @ 33% then there is little difference in after tax returns between this type of fund and a unit trust (all other things being equal).

If your marginal tax rate is LESS than 33%, then (all other things being equal), you will be better off from a tax perspective investing in an equivalent unit trust. Some fund managers offer the same fund in both insurance bond and unit trust structures.

Taxpayers subject to the new tax tier for income above $60,000 can benefit by using these funds to REDUCE their ASSESSABLE INVESTMENT INCOME.