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Ruling not safe bet: ATO

A PRODUCT ruling does not a good investment make. This is the warning from both the Australian Taxation Office and the Australian Securities and Investments Commission.

“While many tax-driven schemes advertise they hold a product ruling, some unscrupulous operators merely adopt the concept as a marketing tool when, in fact, their scheme has not been given the ruling,” an ASIC statement warned.

Product rulings are issued by the ATO and allow investors in certain investment schemes to claim tax deductions on money put into the scheme.

The ATO warned it did not examine the financial merits of investment products and could not advise as to whether a product would be commercially viable or whether projected investment returns could be realised.

Count Wealth authorised representative Malcolm Stewart said there was a belief among investors that if the ATO gave a positive product ruling, the investment must be safe.

“Historically, most tax-effective investments have had a very poor performance record. Many have resulted in a loss of most, or all, of the investment,” Mr Stewart said.

“An ATO product ruling is simply the first step, and not the only requirement to find out whether a product is really a good investment.

“It is also important to consider the fees and charges, whether projected returns are realistic for the industry, the management track record and how well the product fits into the investor’s current portfolio,” he said.

Mr Stewart said many people who invested in such products did so because the tax advantages were so heavily promoted.

The warnings follow a report by Van Eyk Capital which considered only five projects of seventy-three examined were viable investments.

In WA only two schemes were considered suitable – both involved in bluegum planting.

The ATO recently disallowed tax deductions against the sandalwood project near Kununurra – a scheme the ASIC warned investors about more than three years ago.

The ATO ruling against the project means hundreds of people now face financial loss as they pay four or five years of back taxes on an investment promoted as a tax-free scheme.

“The main concern when choosing investment products should be for the total returns and not just the potential tax deductions,” Mr Stewart said.

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