Investor warnings

If the investment you are considering sounds too good to be true it probably is. Be wary of the following statements:

• even if the investment doesn’t go ahead you'll still make a profit from your tax refund
• you don’t need any credit or asset checks, we’ll lend you the money
• you’ll only have to pay back the money from the profits of the investment
• don’t worry about asking the Tax Office if it’s OK – we have a ruling (or an opinion from a Queen’s Counsel, QC, etc)
• there’s no risk
• you’re guaranteed to get your money back in a few years
• while the scheme is legal, the tax man doesn't like it and that’s why all the meetings and transactions are off shore, or
• we can get you access to your superannuation now, no need to retire or worry about the usual rules.

If you see any of these things:

• ask the promoter of the investment whether they have a product ruling from the Tax Office for the project
• if the answer is yes, ask for a copy of the product ruling and read it, or have an independent tax professional read it and explain how it applies to you
• if the answer is no, ask why they don't have a product ruling for the project
• apply to the Tax Office for a private ruling, or
• consult a tax professional who is not involved in promoting the investment.

The following features could also be regarded as warnings. You might see these when you check the proposed investment carefully:

• arrangements which are contrived and artificial in their method of execution
• little or no real underlying business or purpose
• the significance of the claimed tax benefit in realising an economic return
• the contrived transfer of a tax benefit
• limited or non-recourse funding associated with a round-robin flow of funds
• little cash outlay associated with borrowing funds under a capitalising debt facility
• mechanisms for winding up or exiting an arrangement before net income is generated for investor
• assumptions, including ‘blue sky’ projections, that can lead to seemingly excessive valuations of assets resulting in inflated deduction claims
• use of tax exempt entities, eg charities to wash income, and
• transactions involving tax havens.

What to read/do next More information on private rulings and how to apply for one

Last Modified: Tuesday, 18 April 2006

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