Investment and Education Bonds: Tax-effective Structure for Doctors and Dentists
Updated: 5 hours ago
This post is part of our series on tax-effective investment structures for doctors and dentists. If you haven't already, check out my earlier post on superannuation as a tax-effective strategy.
An Old Strategy Making a Comeback
Investment and education bonds aren't new; they've been around for decades. But they've come back into focus recently, thanks to:
Changes to capital gains tax rules
Proposed changes to family trust taxation
Contribution limits on superannuation
For high-income medical professionals looking for additional, tax-effective ways to build wealth, these bonds are worth a closer look.
How Do Investment Bonds Work?
Investment bonds operate as a separate tax entity similar to superannuation in some ways. Here's what makes them attractive:
Tax Treatment
Earnings inside the bond are taxed at a maximum of 30% internally
Franking credits and other offsets can reduce this effective rate further
You don't need to declare the bond's earnings in your personal tax return
For doctors and dentists paying up to 47% in marginal tax, this can represent a significant saving.
Contributions
You contribute after-tax money
You then choose from a range of investment options: managed funds, index funds, actively managed funds, and even ETFs
There are multiple providers, so it's worth comparing
The 10-Year Rule
Here's where it gets really interesting:
If you hold your investment or education bond for 10 years or more, any withdrawals can be completely tax-free you won't need to declare them in your personal tax return.
This makes bonds ideal for long-term wealth building, whether for yourself or your children's future.
The 125% Contribution Rule
One important quirk to be aware of:
Your contribution in any year cannot exceed 125% of the previous year's contribution otherwise, the 10-year clock resets.
Example:
Year 1: You contribute $10,000
Year 2: Maximum contribution is $12,500 (125% of $10,000)
If you exceed that limit, you restart the 10-year period. So it pays to plan your contributions carefully from the outset.
Education Bonds: Extra Benefits for Families
Education bonds are investment bonds with extra tax benefits when used for educational expenses. They can be a smart way to save for:
School fees
University costs
Other approved education expenses
The tax advantages make them particularly appealing for parents planning ahead.
A Versatile Tool for Tax, Education, and Estate Planning
Investment and education bonds aren't just about tax savings. They can also play a role in:
Education planning - Building a dedicated fund for your children's schooling
Estate planning - Nominating beneficiaries and passing on wealth efficiently
Wealth diversification - Complementing super and other structures
In fact, 80–90% of our clients at Affluence Private Wealth have either an investment bond, an education bond, or both as part of their overall strategy.
Is This Right for You?
Investment and education bonds aren't for everyone, but for high-income doctors and dentists looking to:
Reduce their tax burden legally
Build long-term wealth outside of super
Plan for their children's education
...they're absolutely worth considering.
Get in Touch
If you'd like to explore whether investment or education bonds could work for you, reach out to us. We're always happy to discuss your options and tailor a strategy to your circumstances.
Yves Schoof
Director & Principal Adviser | Affluence Private Wealth
