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"Tax effective" product rulings - a step in the right direction

Publication date: 24 Sep 98 | Source: THE TAX INSTITUTE

The Taxation Institute of Australia has welcomed the ATO’s proposal to issue product rulings designed to protect taxpayers who enter into financial products that have been cleared by the ATO. "The proposal represents a step in the right direction and will help taxpayers and their advisers to determine whether they should enter into so-called ‘tax effective’ investments and other financial products," said Taxation Institute Senior Vice President, Mr Gordon Cooper.

"Under the Product Ruling PR98/1 issued by the ATO, promoters of tax effective investments and other financial products will be able to submit their proposals to the ATO for a product ruling which will then provide protection to investors in the product against adverse action by the ATO as occurred last year in relation to split loans," he said.

"Split loans were heavily promoted by banks and other financial institutions as a tax effective way of paying off a home loan. The ATO subsequently issued a draft Ruling retrospectively denying deductions for additional interest claimed under the arrangements."

"Under the proposed product rulings scheme, if the ATO has issued a product ruling for a particular product, taxpayers entering into it after the issue of the ruling will be protected," Mr Cooper said.

He also welcomed the ATO’s acknowledgement that a private ruling request could be used to have the product reviewed by the courts where the ATO have identified that the product ruling was likely to be unfavourable

However, the Taxation Institute said the success of the proposal depended on the ability of the ATO to efficiently handle applications for product rulings.

"Because new products would effectively need ATO approval before marketing, the scheme has the potential to frustrate financial institutions and advisers if undue delays occur in gaining approval from the ATO for a ruling," Mr Cooper said.

"There is also concern that the publication of product rulings will divulge confidential commercial information."

"The Taxation Institute will monitor the scheme to ensure that undue delays do not occur," he said.

Mr Cooper added that although the scheme would protect taxpayers from unfavourable ATO action, it did not mean that the ATO guaranteed the financial viability of the product. This was a matter for investors’ advisers