The end of financial year is approaching – investigate before you invest.
At the end of the financial year people often try to reduce their tax bill through investments that promise large refunds.
But, it can be hard to tell a good investment from a bad one. They can all come with convincing sales pitches.
Promoters of dodgy investments often target people who earn a lot of money like miners and pilots.
Here are some tips for spotting a dodgy investment.
If you hear any of these sales pitches, beware…
‘There’s no risk – we guarantee the returns.’
Be careful if you are offered a guaranteed return on your investment. Real investments come with real risks.
The Australian Securities and Investment Commission’s (ASIC) website www.fido.gov.au has tips on avoiding dodgy investments.
‘You don’t need credit or asset checks, we’ll lend you the money.’
Dodgy investment schemes often require you to take a loan from a scheme related company that is only repaid from future profits or tax deductions. Remember, real loans have real repayments and realistic repayment plans.
‘The investment is legal but the tax man doesn’t like it - that’s why it’s all done offshore.’
Many tax avoidance schemes involve off-shore dealings. The Tax Office has issued warnings, and is currently cracking down on offshore schemes. BEWARE!!
‘Even if the investment doesn’t go ahead you will still make a profit from your tax refund.’
Steer clear of investments that concentrate on tax deductions but make little business sense. If the Tax Office finds that the main purpose of the investment is to avoid tax, you may lose your initial investment, have to pay back the tax and face penalties.
‘Sign this secrecy agreement – we don’t want our competitors stealing our ideas.’
Beware if you are told to keep the investment a secret. Often the real reason for secrecy is that they don’t want the Tax Office or ASIC to find out about it.
‘There’s no need to ask the Tax Office if it’s okay – we already have a ruling.’
Don’t take anyone’s word for it. Call the Tax Office or an independent tax adviser to find out if the scheme really does have a Tax Office product ruling. Genuine ‘tax effective’ investments should have a Tax Office product ruling. This means the Tax Office has examined the investment to see if it is okay. A product ruling does not mean that the investment will make money. It just means investors can legally claim the tax deductions for their investment as long as the arrangement is carried out as described in the ruling.
‘A top lawyer and/or accountant have looked at the investment and they think it’s great.’
In many cases the ‘top lawyer’ may have seen a different investment to the one you are being sold, so their advice will be meaningless. Always seek independent advice from a tax adviser who has no connection with the person selling the investment.
Before signing up to any investment, ask yourself:
Does the salesperson work for a licenced business?
People who offer financial products and who offer advice must work for a business that holds an Australian financial service licence, issued by ASIC.
You can check licence details for free at www.fido.gov.au or by calling ASIC’s Infoline on 1300 300 630.
Does the investment have a product disclosure statement or a prospectus?
By law, investors must be given either a product disclosure statement or a prospectus.
Contact ASIC at infoline@asic.gov.au or phone 1300 300 630 if you don’t get a current product
disclosure statement or prospectus.
Have I got an independent second opinion on the investment scheme?
If your investment passes the first two tests you should still ask the person if they are getting a commission for selling you the investment. Many accountants and financial advisers are
not independent because they get commissions for selling investment schemes.
Before you sign anything get independent advice about the investment from an adviser who has no connection with the seller, or the investment scheme.
INVESTIGATE BEFORE YOU INVEST
Our tax system is based on self-assessment. This means that you are responsible for your tax return – even if it was prepared by your tax agent.
So if you invest in a dodgy investment scheme you could be left with the tax bill after the scheme promoter is long gone with your money.
MORE INFORMATION
If you need more information about whether a taxpayer alert has been issued concerning the
arrangement or whether we have issued a product ruling for the arrangement, you can:
- visit the ATO website at www.ato.gov.au/atp or
- phone the ATO on 1800 177 006 or
- call Taxwise on 08 9248 8124
TIPS FOR INVESTING FROM ASIC
When you are making important decisions about your money whether it’s taking out a loan, buying a house or deciding which super fund to go with, it can be hard to know where to start.
One of the best places is the Australian Securities and Investments Commission (ASIC) consumer website FIDO at www.fido.gov.au ASIC wants you to be well-informed and confident about making important financial decisions.
ASIC’s FIDO website is an excellent starting point if you are thinking of investing. And it doesn’t matter whether you are starting small or planning an investment strategy for the rest of your life. The issues you need to consider will fundamentally be the same.
FIDO can help you:
- develop your financial strategy
- develop your own ground rules for investing so you can stay in control
- avoid the latest scams and dodgy sales practices
- decide whether you should borrow to invest
- decide which tax and social security issues you need to consider, and
- much more!
About The Author
Warren Kruger is an Australian Tax Specialist and Advisor.
For a FREE Report "7 Essential Strategies to Reduce Your Taxation NOW!",
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About The Author
Warren Kruger is an Australian Tax Specialist and Advisor. For a FREE Report “7 Essential Strategies to Reduce Your Taxation NOW!”,enter your name and email address in the Opt In Box located on the top right hand side of this article.
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