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Rulings protect revenue: accountant

WHILE tax officials applaud the product ruling system as protecting small investors, others say the system is nothing but an attempt at revenue saving.

Product rulings came into existence in June 1998 following scandals involving tax shelters.

Many small investors were caught out after promised tax deductions were not approved by the Australian Tax Office.

According to the ATO, the product rulings aims to provide investors with ‘certainity’ in regards to tax consequences.

In fiscal year 1999 the ATO made over 100 product rulings – the majority relating to agricultural and horticultural activities.

The most publicised of these include farms, vineyards, orchards, olives, nuts and coffee plantations.

Recently, however, product rulings have been made on business activities ranging from crocodile breeding to financial services and biotechnology.

The product rulings only apply to the tax consequences of the investment products and not the financial viability of the project.

Australian Tax Commissioner Michael Carmody said the product rulings provide certainty in claimed tax benefits but warned that they only applied if the promoter implemented the arrangement exactly as outlined in the product ruling application,

“They also only apply if they are not affected by subsequent changes in the law,” Mr Carmody said.

Some accountants believe the ATO is not acting out of concern for small investors.

Rather, they consider that the primary aim of the product ruling system is to protect the revenue base of the Tax Office.

According to one Perth accountant, who wished to remain anonymous, the popularity of tax investment schemes forced the ATO’s hand.

“These schemes are most effective for people whose income is over $50,000 per year.” he said.

“The essence of the product ruling is to make these schemes less attractive than in the past.

“A particular problem has been the non-recourse loan or limited recourse loan – even in tax office websites the ATO will not give positive rulings on schemes which involve non-recourse loans,” he said.

He added that the high establishment costs of these ventures tended to make them risky.

“The tax effectiveness was one of the incentives marketed by promoters to draw investors to these risky projects.

“I think the ATO decided the loss of revenue outweighed whatever benefits a successful realisation of these enterprises would have brought.” he said.

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