Trying to think out of the box here. Lots of assumptions, so bear with me.
Firstly, do insurance bonds (with deferred interest/zero tax payable after 10 years) still exist?
If I could free up say $100k equity from a PPOR (not that I have it), is investing in an insurance bond at say 4-5% classed as an investment, hence is the cost of borrowing deductible against the (deferred) interest recieved? I am assuming that investing in a bond as it pays a return is still classed as an investment even though it will not generate a return for 10 years. I know that this would result in a guaranteed loss of say $2-3k pa (difference in interest rates) – hedging my bets & using a little arbitrage.
Assuming that the bonds still exist (and still can be purchased), can I use one as security for a loan – whether it be via a bank guarantee issued against the bond or 100% mortgage against the bond? It is cash afterall hence very little risk to the lender. Would consider the capital guaranteed option if still available (lower risk with lower return).
If I then find something severely cf positive (ie not residential possibly retail/commercial – The deal that I am theoretically considering would return an IRR of 30% over the ten year timeframe), can I then legitimately use as much as I need from the bond as a deposit, get a cf positive deal & at the end of the ten years get my insurance bond money + interest tax free + any unrealised capital gain?
Or is the above scenario a) too much like hard work; b) not practical; c) not legal; d) not an approved scheme by ATO?
Do you mean something like this SNM? http://www.comminsure.com.au/InvestmentGrowthBond.aspx
Thanks IP, that's the sort of thing I was looking at but I need to understand more about the product. Do I need to wait 10 years before I can borrow against these savings (or can I lob up and ask a bank to hold it as security prior to the 10 years)?
Thx Crosby, I noticed an article in May 09 Money Magazine hence the interest in the tax free status as well as trying to get a little creative in using the bond in lieu of a deposit (ie alternative security).
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