How can an Australian expat in Qatar utilise the 10 year tax rule whilst working abroad?

The 10 year tax paid rule is exclusive to Australians, or those wishing to reside there in the future, as an incentive for long term saving. 

This rule allows Australians living abroad and non-Australians planning to retire in Australia to invest their capital with the potential for tax-free growth and withdrawals, provided specific conditions are met. 

Although the rule applies to Australians residing in Australia as well, they may only benefit from tax-free withdrawals, not tax-free growth. To fully capitalise on the advantages, including tax-free growth, it is crucial to establish the investment before moving to or returning to Australia.

Investment and Insurance Bonds:

Investment bonds, also known as insurance bonds or Personal Portfolio Bonds (PPBs), are financial products offered by insurance companies. They combine the features of an investment platform with an insurance policy and can provide tax-efficient long-term investment opportunities if contribution and withdrawal rules are followed.

A PPB operates as an investment platform wrapped within a life insurance policy, which requires the designation of a life insured and a nominated beneficiary. Depending on the structure of the PPB, a wide range of investment options may be available.

Designed for medium-to-long term investment, PPBs also offer flexibility, allowing for additional contributions or withdrawals over time.

The 10 Year Rule

Investment bonds are tax-paid investments, meaning that when the earnings on the investment are received by the insurance company, they are taxed at the corporate tax rate before being reinvested into the bond. This can make insurance bonds a tax-efficient option for long-term investment, particularly for individuals with a marginal tax rate higher than the corporate tax rate.

For those living outside Australia, this becomes even more appealing, as it allows the option to establish an investment bond in an offshore jurisdiction, many of which have a corporate capital gains tax rate of 0%.

If you hold the offshore bond for at least 10 years, all returns, including those on additional contributions, can be tax-free, provided the 125% rule is adhered to.

However, if you make a withdrawal within the first 10 years, the taxation of the investment bond’s earnings will depend on the timing of the withdrawal.

The 125% rule

Investors in investment bonds can make additional contributions each year. As long as these contributions do not exceed 125% of the previous year's amount, they will be treated as part of the original investment. This allows each additional contribution to benefit from the full tax advantages without needing to be invested for the entire 10-year period.

However, if contributions exceed 125% of the previous year’s investment, the 10-year period will reset to the beginning of the year in which the excess contribution was made. You will then need to wait another 10 years from that point to qualify for the full tax benefits.

Additionally, if no contributions are made in a given year, any contributions in subsequent years will reset the 10-year period.