Investors may face hefty bills

INVESTORS who bought into tax effective schemes with Australian Tax Office product rulings risk being left with the loan liability for their investment if the scheme manager goes broke.

For the past two years the ATO would not give a scheme a product ruling unless it has full recourse loans.

This means the people who borrow money to buy into the scheme can be held liable for those loans by whoever buys the scheme’s loan book of a failed scheme.

Australian Securities and Investments Commission WA regional commissioner Michael Gething said he was concerned by developments in the industry that could leave investors out on a limb.

Mr Gething said this had already happened with Allrange Tree-farms, a tax effective product linked to failed and jailed finance broker Graeme Grubb.

“Full recourse loans were one of the problems there,” Mr Gething said.

“Investors have been left servicing the interest on those loans and there is a chance the project may not be viable.”

This issue could concern investors in schemes promoted by Australian Plantation Timber, which appointed administrators this week after the Common-wealth Bank called in its $50 million loan facility.

Grant Thornton partner Mervyn Kitay, acting as APT’s voluntary administrator, said in the worst-case scenario investors could end up saddled with debt.

However, Mr Kitay stressed negotiations were ongoing with the Commonwealth Bank, centering on funding APT’s remaining timber plantings.

He believes the situation will be sorted out within a matter of days.

And about 40,000 investors in pre-product ruling mass marketed schemes that have already had their deductions disallowed by the tax office could also be in for another nasty surprise.

Just when they thought their luck had changed – after the ATO announced last week that the interest on tax debts for eligible investors would be reduced from 11.89 per cent to 4.72 per cent – it seems there are strings attached.

The ATO’s interest reduction did not extend to tax effective scheme promoters, tax advisers and financial planners who gained a fee relating to another investors participation in these schemes, or tax agents and others who gave tax advice for a fee on a regular basis.

But to gain access to the interest reduction, investors have to pay off their tax debt first or enter into an agreement with the ATO to service their debt.

Some investors face tax debts of around $50,000.

Deloittes Growth Solutions partner Dudley Elliott said that, if investors defaulted on their agreement with the ATO, they would be hit with the full interest cost.

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