Tax Determination 2012/1 query

TD2008/27 is a tax determination that their accountants obtained in relation to compound interest. This is apparently their green light to claim the interest. Now I am really confused!!

 

Say what!

TD 2008/27 just says interest on interest is deductible if the underlying interest is deductible.

But it doesn't discuss Part IVA which TD 2012/1 does and says it will apply.

 

That how scheme promoters do it. They get a specific ruling that they apply to other broader facts. Smoke and mirrors. Its the two card marley. And the Commr best trick is to smack the Part IVA card on the table later. What does the class ruling or binding private ruling that considers ALL the circumstances say ? Bet they don't have one.

Compound interest is deductible. No dispute. What isn't deductible is interest from a split loan scheme. Some of Australian biggest banks tried this long ago and gave up. You think CBA wouldn't offer it if it was legit ?

 

Geez this is so dodgey. can't believe I have been caught up in this mess.

 

Best to let the ATO investigate and claw back some of our tax money!

 

As TerryW points out, Part IVA is the broader issue. The details of the situation are fine but they dont pass the broader anti avoidance provisions.

This is not rocket science and all accountants are or should be aware of the over riding TD.

 

Thanks so much everyone. I will get back on the phone tomorrow to get it sorted. I will take the advise of the ATO and call the TPB and discuss it with them. I am NOT happy that I am expected to pay these people $4k for their "package" they sold us. I will be disputing that too...

 

I could have set you up with an illegal structure for free!

 

TPB register tax agents so reporting them is a disciplinary thing, but it is the ATO that it should be reported to so that they can recover taxes not paid.

 

I will call the ATO too, thanks Terry!

 

I would ask for the refund prior to speaking to the TPB or ATO. Once you open the can of worms there might not be enough funds to refund you.

 

Another feature of a scheme. They paint a picture of special features unavailable elsewhere. And charge a high fee for it. They may have encouraged you not to spread the word but are happy to get referrals. They are in this for money.

You may have a case of misleading and deceptive conduct to explore. Consumer law may be a way to address this without costly legal processes. ie small claims. Do your homework.

 

Thanks guys. I haven't yet paid them their $4k and won't be paying it until I speak to someone and get some further advice. Their accountant won't return my calls - I wanted to hear direct from the source exactly how he treats the interest in these circumstances before I go any further. I will call consumer affairs and the ATO in the morning.

 

UPDATE
I have finally had a conversation today with the accountant of the broker I was dealing with. Here is what he told me:
- They base all their tax advice around Global Limit products taxation on ID2006-297. When I suggested that TD2012-1 is more current, he told me that this 2006 ID will remain current until the ATO removes it from their records and until such time, they are acting legally.
- They claim 100% of the interest on the IP loan (what the?) based on the above Interpretive Decision.
- The ATO use scare tactics and when they say "maybe" they do not mean "we are going to...", in relation to TD2012-1. His opinion is the ATO have not got a leg to stand on. His words "just because the ATO doesn't like it, doesn't mean it is illegal".
- He said the bank wouldn't be offering this type of product if it was illegal. I put it to him that the product is not illegal, but the way that we have been told to use it is. He disagreed.
- When I suggested that I may contact the ATO for a binding ruling, he laughed and said good luck. He could almost guarantee we wouldn't get one because the ATO never get around to actioning them and giving a ruling.
- And the biggie: he said it's all in the wording. If we were to say we were doing this to increase our tax deductions we would be in trouble. If we instead say we are doing this to build our assets and secure our financial future we would be ok.

I have not believed a single word he said and I have put things in motion to have our product switched to a term loan with an offset account. Just wanted to share with you all what their accountant had to say. Unbelievable?!

 

Thanks for the update.
Strictly speaking everything he said is true. Banks wouldn't offer a product that was illegal - but not sure how this is relevant to the topic.

However I am not sure what he is relying on in ID2006-297 as it clearly says the ATO will deny the deduction - see bold below

 

I do still believe they are doing the wrong thing. I will be interested to hear what the ATO say, I emailed them last week asking them to look into it. Wonder if they will ever get back to me? I hope so, just so I can put my mind at ease.

 

Yes definitely. They are implying things will be ok, dismissing Part IVA.

One thing they said that was wrong is the PBRs = The ATO must respond.

 

They are suggesting they have an arguable position - anything can be argued but not everyone has the time, money or desire for a long legal dispute.

Given the well publicised ATO view you will be defending an amended assessment with 100% penalties plus interest.

I cant believe brokers or accountants would still be pushing this stuff. Must be desperate times.

 

Very typical of a scheme / promoter to peddle wares using unrelated decisions. And as Terry say all they say appears true. But Part IVA always hangs over all matters. That's why the Product Ruling system exists. You can acquire a Product knowing Part IVA doesn't apply or when it may apply.

Without a Product Ruling I wouldn't believe a word. Why don't they have a PR ?
https://www.ato.gov.au/General/ATO-...(rulings)/Product-rulings/What-is-a-product-/

 

I asked him to give me a copy of the ruling specific to them rather than using other randoms and he doesn't have one. He was trying to be very persuasive but I told him that I still was not comfortable with how it has been set up and thanked him for his time and left it at that.