Infinite Banking Concept (IBC) In Australia: An Overview

Challenges in Australia

Absence of Whole Life Insurance:

Whole life insurance is no longer available in Australia. Following the introduction of compulsory superannuation in 1992, the popularity of whole life insurance declined https://www.canstar.com.au/life-insurance/term-vs-whole-life-insurance/#:~:text=After%20the%20federal%20government%20introduced,The%20super%20death%20benefit.

Superannuation, introduced as a means to ensure all Australians have sufficient funds for retirement, now includes a death benefit similar to whole life insurance, thus serving as an alternative

https://www.canstar.com.au/life-insurance/term-vs-whole-life-insurance/#:~:text=After%20the%20federal%20government%20introduced,The%20super%20death%20benefit

https://www.apra.gov.au/life-insurance-superannuation-improving-outcomes-for-members#:~:text=Under%20the%20Superannuation%20Industry%20,subject%20to%20certain%20limited%20exceptions

https://www.superguide.com.au/comparing-super-funds/life-insurance-and-super#:~:text=An%20easy%20way%20to%20organise,from%20your%20super%20account%20balance

Regulatory Differences:

The tax treatment of insurance dividends differs between the USA and Australia. The IRS views life insurance dividends as a refund of a premium and not as taxable income. https://finance.zacks.com/life-insurance-contract-dividends-reported-taxable-income-2611.html#:~:text=The%20IRS%20views%20these%20life,1%2C000%20at%20the%20end. (The specific tax treatment by the ATO wasn't readily available.)

Lack of Borrowing Capacity:

The core of the IBC is borrowing against the cash value of whole life insurance policies. However, with the absence of whole life insurance in Australia, this aspect of the IBC isn't feasible.

Offshore Alternatives:

Offshore Bank Accounts:

Australians have the option to open offshore bank accounts, potentially providing access to financial products not available domestically, along with potential tax minimization opportunities. https://www.finder.com.au/savings-accounts/offshore-banking

Funds can be sent overseas through International Funds Transfer Instructions (IFTIs), using money transfer companies, or through online platforms.

https://www.austrac.gov.au/business/core-guidance/reporting/money-transferred-and-overseas-international-funds-transfer-instruction-ifti-reports#:~:text=An%20international%20funds%20transfer%20instruction,be%20made%20available%20in%20Australia

https://moneysmart.gov.au/banking/sending-money-overseas

Offshore Investment-Linked Insurance Bonds:

Holding or considering offshore investment-linked insurance bonds for investment and longer-term planning purposes could potentially serve as an avenue to mimic the IBC in an offshore setting. https://avriowealth.com/investing-outside-of-australia-as-an-expat-the-tax-treatment-of-offshore-portfolio-bonds#:~:text=Holding%20or%20considering%20offshore%20investment,to%2C%20or%20returning%20to%20Australia

Legal Considerations:

There are legal considerations such as ensuring compliance with tax laws and avoiding money laundering or tax evasion issues when engaging in offshore investing. https://fastercapital.com/content/Are-There-Any-Legal-Issues-With-Raising-Money-From-Offshore-Funds.html#:~:text=One%20of%20the%20most%20common,offshore%20investing%20is%20money%20laundering

Recommendations:

For precise and personalised advice, consulting with financial advisors  in ⁠our directory of professionals who are familiar with both Australian and international financial laws and products is advisable. They could provide tailored guidance on whether and how the IBC could be implemented from Australia, either domestically or through offshore financial institutions.