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Fallout continues from ATO ruling

In this week’s report Gary Kleyn looks at some things to consider before making an investment in managed investment schemes.

INVESTORS in managed investment schemes received a big wake-up call when the Australian Taxation Office decided to clamp down on tax effective schemes by disallowing certain tax deductions.

The result has left many investors wary of claims made by managed investment scheme promoters. The Australian Securities and Investment Commission has also been busy providing advice to investors.

There are several advantages of investing in managed investment schemes, among them the fact that the fund manager has the responsibility for keeping records. Then there are the low start-up costs, the ability to diversify and to have the investment managed by professionals.

But traditionally, the main reason for investing in the schemes has been the perceived tax benefits.

Yet, ASIC advises that an investor consider first and foremost the quality of the investment, and not the possible size of the tax deduction.

“After all, investments are supposed to make money, not lose it,” ASIC says in an advice briefing.

“Although a good adviser will always develop an investment strategy which takes taxation factors into consideration, you should be wary of advice which focuses only on these factors and ignores your needs.

“Some people forget too that to gain the tax benefit of negative gearing your asset must first make an income.”

And for those investors still taking a fancy to managed investment schemes ASIC has this advice: “Investing does mean taking a risk that you may lose some money, but you will usually be much safer if you invest in property you have inspected yourself, shares in solid companies or investments managed by large, reputable investment managers.”

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