Defaulting agribusiness investors facing tax slug
Investors in timber agribusiness managed investment schemes who default on their loans may also find themselves facing substantial tax bills.
However, investors in horticultural schemes could avoid paying any additional tax if the loan is 'forgiven'.
"If an investor defaulted on a loan for a forestry scheme within four years of buying the units, the part of the loan they hadn't paid would be treated as assessed income," he said.
"This means the ordinary rate of tax would apply to that investor's income."
For an investor who is in a lower tax band and receiving a large sum of taxable income from a defaulting loan, it could push them into a higher tax bracket.
This would negate any tax savings an investor might have claimed when making the initial investment, depending on how much of the loan was outstanding.
"The tax office does have the ability to claw back sums if the investor has not fulfilled their loan obligations within the four years," Wookey said.
"However, for horticultural schemes the ordinary procedure of debt being 'forgiven' by the tax office would apply," he said.
If the finance company writes off the outstanding amount of the loan, the tax office allows the investor to treat this as a negative expenditure for assessment.
Wookey said advisers needed to be particularly careful of the wording in the ATO Product Ruling on the scheme.
"Depending on the wording, the investor could still be at risk of having to pay some additional tax on the defaulting loan," he said.
Recommended for you
The Reserve Bank of Australia (RBA) has lowered rates to a level not seen since mid-2023.
Financial Services Minister Stephen Jones has shared further details on the second tranche of the Delivering Better Financial Outcomes reforms including modernising best interests duty and reforming Statements of Advice.
The Federal Court has found a company director guilty of operating unregistered managed investment schemes and carrying on a financial services business without holding an AFSL.
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
