I am saving up money now for my daughters college education which will happen in 18 - 20 years.

My plan is to invest in vanguard ETF - "Vanguard Australian Shares Index Fund(VAS)" with an initial investment of 5000 AUD and then keep buying ETF's for 1500 AUD every 3 months.

Assuming that the fund gives me a return of 9% how do I understand the implication of capital gains tax when I decide to sell my ETF units to raise cash after 18 - 20 years.

The reason I ask is that there are other "education funds"[eg:- Australian Unity] in the market which as per PDS says the following

If you have held your Plan for more than 10 years, withdrawal proceeds are not taxable.

The above statement I assume means that I need not pay any capital gains on these. So when comparing the vanguard fund and the "education bond" how do I understand the implication of capital gains tax on the vanguard fund.

1 Answer 1


In terms of growth, an online CAGR calculator indicates that with an initial deposit of $5,000 and an additional contribution of $500 per month, at 9% growth the return will be about $293k. You could also carry it further by reducing the $293k by the estimated annual amount of withdrawal and continuing to earn 9% on the balance for the remaining 3 years (assuming a 4 year college experience).

Determine what you expect to withdraw per year for educational expenses and multiply that amount by what you think your capital gains rate and tax bracket will be 18 years from now. That will be the implication of capital gains tax on the Vanguard fund.

I don't know much about long term investment in tax advantaged education funds but they can be tricky tax wise (duration, limits on contributions, withdrawals, etc.). I suggest that you speak with a competent tax professional familiar with "Australian Unity" or anything similar that you are considering.

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