QUESTION marks are emerging as to whether product rulings are achieving their initial aim of increased investor security.
QUESTION marks are emerging as to whether product rulings are achieving their initial aim of increased investor security.
What many are starting to fear, but few dare to suggest, is that ambiguous elements tied into a product ruling are, in fact, not protecting investor interests and could return to bite scheme managers.
This is because they are locking promoters into inflexible business practices, with promoters hamstrung from making changes for fear of losing the all-important product ruling, without which the scheme is doomed to failure.
Central to the difficulties managers and promoters of these schemes face is the question of what constitutes ‘material difference’.
The Australian Tax Office has the power to remove a product ruling at any time it feels the managers have changed their methods of operations in a ‘materially different’ way.
What this means varies considerably, depending, it appears, on what kind of relationship has been established with the ATO.
Some say the material difference clause could be applied for as insignificant a thing as changing the type of irrigation used in a project, while others believe the clause allows for considerable flexibility.
Material difference would apply in situations such as where no irrigation was being used, when the original prospectus or product disclosure statement indicated irrigation would be used.
Yet ask almost any accountant, financial planner or other managed scheme promoter and concerns are swept under the carpet, some for fear of retribution from the ATO or the fear that the ATO could withdraw the promoter’s biggest selling tool.
One of the few to speak out on the issue to WA Business News was Barrington Partners partner and olive product promoter Roger Sullivan.
“Not many would be willing to stand up because it would be disastrous and won’t occur until someone is in a position where it [a product ruling] has been knocked back,” Mr Sullivan said.
“A lot could be breaching it without realising it. If a product ruling is withdrawn by the ATO it would create hysteria. Then, all sorts of people will come out and talk because they won’t have anything to lose.”
To this point the ATO said there were only two cases in 2001-02 where a product ruling was withdrawn because the arrangement implemented was ‘materially different’ to the arrangement described in the product ruling.
In total, 48 product rulings out of 159 issued were withdrawn during the year and before the expiry date shown on the product ruling.
The ATO was loath to make mention of the particular cases but said an example would be where work required to be completed by a particular date had not commenced.
The issue has already attracted the interest of the Institute of Chartered Accountants.
Mr Sullivan said ICAA committees had drawn the attention to the national liaison group of practising accountants, which included government and ATO representatives.
Australia’s other accounting body, CPA Australia, has so far remained quiet on the issue.
CPA Australia chief executive Graham Harrison told WA Business News that, while the product rulings were not perfect, the system provided a level of certainty that assisted the promoter.
“I think its fair to say that in the process it does give the ATO a lot of power, but the tax commissioner would always say it was designed not to give more power, but just to provide certainty,” Mr Harrison said.
“A promoter who is unable to get a product ruling is at a disadvantage, there is no doubt about it.
“What people have found is that the commissioner is the one calling the shots. He will decide whether it is materially different.”
Despite this, Mr Harrison said his members supported the status quo.
“Certainly CPA Australia would prefer to see a product ruling in place. We support the whole product ruling system and we would be unhappy if the product ruling system was taken away,” he said.
And promoters are also publicly voicing their approval of the system.
Great Southern Plantations general manager Cameron Rhodes said the system was designed to provide scheme managers with a lot of scope by using terms such as using ‘world’s best practice’.
“I accept that a product ruling system becomes such an important ingredient so that it comes to a point that you will do anything to keep that ruling,” he said. “Sure it might be a hassle, but it keeps the integrity in the system and it’s a price worth paying.”
What many are starting to fear, but few dare to suggest, is that ambiguous elements tied into a product ruling are, in fact, not protecting investor interests and could return to bite scheme managers.
This is because they are locking promoters into inflexible business practices, with promoters hamstrung from making changes for fear of losing the all-important product ruling, without which the scheme is doomed to failure.
Central to the difficulties managers and promoters of these schemes face is the question of what constitutes ‘material difference’.
The Australian Tax Office has the power to remove a product ruling at any time it feels the managers have changed their methods of operations in a ‘materially different’ way.
What this means varies considerably, depending, it appears, on what kind of relationship has been established with the ATO.
Some say the material difference clause could be applied for as insignificant a thing as changing the type of irrigation used in a project, while others believe the clause allows for considerable flexibility.
Material difference would apply in situations such as where no irrigation was being used, when the original prospectus or product disclosure statement indicated irrigation would be used.
Yet ask almost any accountant, financial planner or other managed scheme promoter and concerns are swept under the carpet, some for fear of retribution from the ATO or the fear that the ATO could withdraw the promoter’s biggest selling tool.
One of the few to speak out on the issue to WA Business News was Barrington Partners partner and olive product promoter Roger Sullivan.
“Not many would be willing to stand up because it would be disastrous and won’t occur until someone is in a position where it [a product ruling] has been knocked back,” Mr Sullivan said.
“A lot could be breaching it without realising it. If a product ruling is withdrawn by the ATO it would create hysteria. Then, all sorts of people will come out and talk because they won’t have anything to lose.”
To this point the ATO said there were only two cases in 2001-02 where a product ruling was withdrawn because the arrangement implemented was ‘materially different’ to the arrangement described in the product ruling.
In total, 48 product rulings out of 159 issued were withdrawn during the year and before the expiry date shown on the product ruling.
The ATO was loath to make mention of the particular cases but said an example would be where work required to be completed by a particular date had not commenced.
The issue has already attracted the interest of the Institute of Chartered Accountants.
Mr Sullivan said ICAA committees had drawn the attention to the national liaison group of practising accountants, which included government and ATO representatives.
Australia’s other accounting body, CPA Australia, has so far remained quiet on the issue.
CPA Australia chief executive Graham Harrison told WA Business News that, while the product rulings were not perfect, the system provided a level of certainty that assisted the promoter.
“I think its fair to say that in the process it does give the ATO a lot of power, but the tax commissioner would always say it was designed not to give more power, but just to provide certainty,” Mr Harrison said.
“A promoter who is unable to get a product ruling is at a disadvantage, there is no doubt about it.
“What people have found is that the commissioner is the one calling the shots. He will decide whether it is materially different.”
Despite this, Mr Harrison said his members supported the status quo.
“Certainly CPA Australia would prefer to see a product ruling in place. We support the whole product ruling system and we would be unhappy if the product ruling system was taken away,” he said.
And promoters are also publicly voicing their approval of the system.
Great Southern Plantations general manager Cameron Rhodes said the system was designed to provide scheme managers with a lot of scope by using terms such as using ‘world’s best practice’.
“I accept that a product ruling system becomes such an important ingredient so that it comes to a point that you will do anything to keep that ruling,” he said. “Sure it might be a hassle, but it keeps the integrity in the system and it’s a price worth paying.”
