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Investors beware: check schemes

INVESTORS are putting at risk millions of dollars by not carefully checking the viability of tax benefits of investment schemes before pouring in their hard earned money.

Australian Society of CPAs WA president Ron Metcalf said the warning follows the Australian Tax Office’s rejection of yet another type of investment scheme, this time for a new wave of film investments, leaving many investors with sizeable tax bills they did not expect to pay.

The rejection of this latest scheme follows successive warnings by the tax office that it is getting strict on investments where tax minimisation is the major benefit.

“Too many people are still relying on the information contained in a glossy brochure rather than thoroughly checking the claims made,” Mr Metcalf said.

“While there are many good investments being offered there are also always bad investments on the market.

“You are the only one responsible for your tax so if you follow the advice provided on a brochure and it turns out to be wrong, then you are the only one responsible and the person who will face the tax office.”

Last year a new system was introduced by the Federal Government to overview these schemes.

Now promoters of a scheme apply to the tax office for a ‘product ruling’ that confirms the proposed taxation treatment of the investment.

According to Mr Metcalf, there are some simple steps people can take to avoid being caught out by a bad investment.

These are:

• Look for the product ruling. If a scheme does not have a product ruling you run the risk that the claims may not be allowed.

• Commercial reality of a scheme. It is important to look at the investment itself apart from the tax breaks to see if it is a good investment in its own right

• Aggressive sales people. Be wary of sales people who want you to sign an agreement right away without giving you time to explore the validity of the scheme

• Claims of inducements not made in writing. Consider all claims and inducements not made in writing not to exist

• A return on your investment that sounds too good to be true. Remember, there is always a relationship between risk and return.

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