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Most mass marketed scheme investors set to benefit from interest reduction.



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Media Release - Nat 01/58

Most Mass Marketed Scheme Investors Set to Benefit from Interest Reduction The vast majority of investors in mass marketed schemes will be eligible for a substantial cut in interest for their scheme-related tax debt under guidelines released today.

Eligible investors will be entitled to a reduction in interest from the current full interest rate of 11.89 per cent to 4.72 per cent.

The guidelines (see attachment) set out which investors are entitled to this interest reduction. They were developed following consultation with community representatives.

"This decision seeks to strike a balance between protecting Australia's tax system and the need to deal fairly with those caught by the marketing of these schemes," Mr Carmody said.

Tax Commissioner Michael Carmody said the Tax Office will reduce the interest for most mass marketed scheme investors in recognition that many have circumstances that warrant an interest reduction.

"Many investors lacked full knowledge of the schemes and how the tax system works. They also relied on advice from people who they thought had the necessary knowledge. And of course many of these schemes were marketed in a very aggressive manner to people who otherwise had generally good tax records."

"In the end many investors appear to have suffered a real financial loss," Mr Carmody said.

While most investors are expected to be eligible for the lower interest, some are excluded. These are scheme promoters, tax advisers and financial planners.

"It is difficult to see how these people, particularly those who were paid for designing, managing, or marketing these schemes, would warrant a reduction in interest. These investors should have been well aware of the tax issues associated with their investment and how the self-assessment system works.

"Investors involved in different mass marketed schemes or other tax avoidance schemes in three or more years with a pattern of substantially reducing their income will need to demonstrate to the Tax Office that they should be eligible for the interest reduction."

The Tax Office will write to around 40,000 investors from this week to provide the guidelines and an application form.

CANBERRA 23 July 2001

Guidelines - Concessional rate of interest for mass marketed investment scheme debts These guidelines will be used to determine which mass marketed investment scheme investors will be entitled to a reduction in the rate of interest applying to their scheme-related debt. Eligible investors will be entitled to an interest reduction from the full general interest charge, currently 11.89 per cent, to a rate reflecting the time value of money. This rate will be 4.72 per cent which is the rate applicable to tax due before 1 July 1999 but for administrative simplicity it will be used for all years. It represents a small reduction on the current rate of 4.89 per cent.

On 26 April 2001, the Tax Office announced the interest reduction and a process of public consultation to determine appropriate guidelines for determining who should be entitled. These guidelines have been developed following consultation with individual investors, investor representatives, financial advisers, accountants, tax professional bodies and the Ombudsman.

Who is eligible?

Interest reductions will apply to investors in these schemes because many investors lacked full knowledge of the scheme arrangements and the operation of the tax system; they were often subject to aggressive and sophisticated marketing techniques; they have a generally good tax record and typically they took advice from people expected to have the necessary knowledge. In the end, many appear to have suffered a real financial loss.

It is this combination of circumstances of typical investors in these schemes that constitute special circumstances warranting an interest reduction.

We do not believe that the interests of fairness or efficiency in administration are served by individually reviewing the circumstances of all investors to determine the degree to which they fit the typical mould. Rather, the interest reduction will apply generally to investors in these schemes, other than the specific categories of investors outlined below.

It is expected that the vast majority of investors will be entitled to a reduction in interest based on these guidelines.

The majority of investors are individual taxpayers. However, partnership, company, trust and superannuation fund investors are also eligible for the interest reduction unless they fall into the excluded categories.

Excluded categories Scheme promoters-those who designed, prepared, managed or marketed the investment schemes, including the directors and office bearers of the entity which managed the investments.

●

Tax advisers and financial planners who received a fee relating to another investor's participation in the investment schemes. ●

Tax agents and others who give tax advice for a fee on a regular basis. These investors could be expected to have been aware of the taxation issues associated with their investment, including an understanding of the self-assessment system.

●

Given the roles of the above three categories of investors, it is difficult to see how they would satisfy the special circumstances outlined above to warrant an interest reduction. However, if such an investor can objectively demonstrate special circumstances these will be considered on a case-by-case basis.

Multiple year investors

Investors involved in different mass marketed investment schemes or other tax avoidance schemes in three or more years with a pattern of substantially reducing their income will need to demonstrate to the Tax Office on a case-by-case basis that they meet the special circumstances to warrant an interest reduction.

General conditions

Investors will be eligible for an interest reduction when:

they have paid their scheme-related debt; or ● they have entered into a payment or settlement arrangement. ●

The interest reduction only applies to mass marketed investment scheme debt arising from deductions claimed in 1998/1999 and earlier years. It will not apply to tax debts relating to other tax avoidance schemes, including employee benefit schemes and financial products.

Investors who have other outstanding tax debts which are neither disputed nor under a payment arrangement will need to pay these amounts, or enter into a payment arrangement before they would be eligible for the reduced interest rate for their scheme-related debt.

If investors default on an agreed payment arrangement, the interest rate may revert to the full general interest charge (currently 11.89 per cent).

Process for applying for the interest reduction

Investors can apply for the interest reduction when they enter into a payment or settlement arrangement. The reduction will occur at the time they enter into an arrangement. Under a payment arrangement interest will be remitted on an annual basis, subject to compliance with the payment arrangement.

Investors who decide to await the outcome of court cases before entering into such an arrangement will still be entitled to the interest reduction at the time of either payment or entering into an arrangement.

Those who have already paid or entered into a payment or settlement arrangement will need to complete the application form to have their interest adjusted accordingly.