Warning: This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
If you are asked to join a 'tax effective' investment scheme, especially one that involves sending your money offshore, it makes sense to check it out carefully. At a minimum, you should check that the promoter and scheme are legitimate and have some substance behind them. While this is not always easy or obvious, there are precautions you can take.
Before you invest
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What you should be aware of
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Visit the ASIC website at www.fido.asic.gov.au for consumers and investors to check that:
- the company offering you the investment holds an Australian Financial Services (AFS) licence
- the managed investment scheme is registered with ASIC, and
- the organisation operating a registered managed investment scheme is a public company.
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Companies offering financial product advice or products in Australia must hold an AFS licence.
The AFS licence will set out what financial services the holder is permitted to provide, for example, authorisation to operate certain kinds of registered managed investment schemes.
In most cases, managed investment schemes available to retail investors must be registered with ASIC. You can find out whether a managed investment scheme is registered by searching the ASIC National Names Index Register.
Responsible entities (that run registered managed investment schemes) must also be public companies (that is, have 'Ltd', not 'Pty Ltd', after their name). You can check this by searching ASIC's National Names Index Register. This will also tell you if the company is Australian.
There may be situations where a company may not hold an AFS licence or be registered in Australia but may be allowed to operate in Australia. For example, this occurs in the situation of certain foreign collective investment schemes. ASIC may allow one of these schemes to operate in Australia without holding an AFS licence or without the managed investment scheme being registered. Refer to Regulatory Guide 178: 'Foreign collective investment schemes', which you will find under 'Publications' on the ASIC website.
However, if you are dealing with an investment scheme that is not registered, it is particularly important that you should consider seeking professional advice from an adviser who has an AFS licence or is an authorised representative of an AFS licensee.
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Check that the investment scheme has a product disclosure statement and get a copy.
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Registered managed investment schemes must generally give you a product disclosure statement (PDS) before accepting an investment from you. This is a document that clearly and concisely sets out information about the scheme in enough detail that you can make an informed decision about investing. Some of the information may not be in the PDS - it may be referred to in the PDS and be available on request. A PDS does not have to be given in some situations. For example, an exemption may apply. Refer to Regulatory Guide 178: 'Foreign collective investment schemes', which you will find under 'Publications' on ASIC's website.
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Check our taxpayer alerts.
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We issue taxpayer alerts about emerging tax planning arrangements that we have under risk assessment, including arrangements involving tax havens.
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Even if the scheme is registered as an Australian entity, this of itself does not guarantee the commercial viability of the investment.
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Taxpayer alerts that involve tax havens
TA 2005/5 - Use of an outbound, offshore re-invoicing arrangement to avoid or evade Australian tax
Describes an arrangement to reduce exposure to Australian tax by providing goods or services to an offshore structure below market value, which then provides the same goods or services to a third party at market value, paying no Australian tax.
TA 2005/6 - Use of an inbound, offshore re-invoicing arrangement to avoid or evade Australian tax
Describes an arrangement to reduce exposure to Australian tax by using an offshore structure to artificially inflate the price of goods or services. In extreme cases, no actual goods or services may be provided and no third party may actually be involved.
TA 2005/7 - Asset transfer to an offshore structure at below market value in anticipation of resale to a third party at market value
Describes an arrangement to reduce exposure to Australian tax where an Australian resident taxpayer transfers an asset to an offshore structure below market value. The offshore structure subsequently sells the asset to a third party at market value.
TA 2005/8 - Asset transfer to an offshore structure at below market value with subsequent use to produce income not attributed to the taxpayer for Australian tax purposes
Describes an arrangement to reduce exposure to Australian tax by transferring an asset to an offshore structure at below market value. The Australian resident does not disclose their interest in the offshore structure. The offshore structure uses the asset to produce income, paying no Australian tax.
Case study: Investments offered through offshore seminars
An offshore group is promoting training and education courses that offer ownership of a 'tax-free' international business company, information on how to use it and a Swiss bank account with internet and credit card facilities. We are concerned that the company, Swiss bank account and credit card activities may be used as part of a tax avoidance or evasion arrangement. Arrangements involving purportedly 'tax-free' international business companies and any associated international dealings could be illegal and should be avoided.
Sometimes people attending offshore seminars are offered investment opportunities or products. ASIC advises that you should deal only with licensed Australian businesses because your rights are enhanced if something goes wrong. If you deal with unlicensed overseas businesses, you lose the protection afforded by Australia's licensing regime.
Case study: Unlicensed advisers and investments
ASIC investigated a former financial planner who was previously an authorised representative of an Australian bank. For a fee, he advised some of the bank's clients to invest in a company based in the Bahamas. This investment was not an approved investment product of the bank.
The clients were told that the Bahamanian company was associated with another international bank, which was untrue. The monies were transferred to accounts in the Bahamas and the Dominican Republic. A large amount was subsequently transferred back to an Australian private company controlled by the financial planner, who used the funds in a number of failed business ventures.
The former financial planner was convicted of dishonestly obtaining a financial advantage by deception, two counts of fraudulent misappropriation, and three counts of making and using false statements. He was sentenced to eight years imprisonment with a non-parole period of five-and-a-half years. His clients lost their money.
Sections within Risks for taxpayers
Last Modified: Tuesday, 18 October 2011