Tax scams
With the end of financial year approaching you might once again be offered an end-of-year investment opportunity. If these promise big tax breaks how can you check if they will actually materialise?
Down under
ATO. With the end of its financial year approaching the Australian Tax Office (ATO) has been warning investors of too good to be true end-of-year investment schemes. Taxpayers should be wary of any product or scheme promising big tax breaks as a major selling point, or any offer to reduce “tax burden” through investment schemes offering large tax deductions for small cash outlays. In any event, an investment decision should make sound business sense and not be based purely on claimed tax benefits.
Product ruling. In Australia you can check if an investment product has been approved by the ATO. While a product ruling does not guarantee commercial success, it does guarantee the tax result if the arrangement has been implemented as it was put to the ATO. Very handy for Australian investments but what about other too good to be true schemes here?
Tax lie detector
Alarm bells. If the investment you are considering sounds too good to be true it probably is. From a tax point of view the dead giveaways include 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 Taxman 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 Taxman doesn’t like it and that’s why all the meetings and transactions are offshore”
• “We can get you access to your pension fund now, no need to retire or worry about the usual rules.”
If you come across these statements in an end-of-year investment opportunity’s promotional literature, what should you do?
If you are still interested…
Tax avoidance register. If you see any of the above promises but are still interested in the investment then we suggest the following course of action:
Step 1. Ask the promoter of the investment whether they have registered this tax avoidance scheme with the UK Taxman.
Step 2. If the answer is “yes”, ask for a copy of what was submitted with the registration and read it, or have an independent tax professional read it and explain how it applies to you.
Step 3. Alternatively if the answer to your question is “no”, ask why they don’t have a registration number for this tax avoidance scheme. Is their explanation credible?
Step 4. If you still want to carry on, then consult an independent tax professional on the availability of the tax break.
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