|
|
Tax Shelters - Primary production schemes not a haven |
At this time of year many taxpayers turn their minds to ways to minimise tax. |
At its simplest, tax planning involves either the alienation of income, perhaps through personal service entities, salary sacrificing or even more elusive offshore arrangements, or the maximising of deductions. |
By this point in the year it is normally too late to implement an alienation-of-income arrangement because taxpayers will normally have derived most of their income for the financial year. Exceptions might be expected bonuses and potential capital gains. |
One class of deductions some taxpayers consider is primary production tax shelters - as often as not, for some reason, originating in WA. |
These sort of shelters have involved almost every imaginable type of primary production activity, including timber, grapes, olives, macadamia nuts, blueberries, cattle, crayfish, exotic plants and cherries. |
A feature of the schemes is that tax deductions are claimed for upfront management fees and for what normally would be non-deductible capital expenditure. |
However, many of these schemes have been successfully attacked by the Tax Office. |
One reason the schemes have not had the desired result is that often the financing of the arrangements involved round robins and non-recourse financing. This has caused the courts to find that they were entered into predominately to generate tax deductions and not for genuine commercial reasons. |
Nowadays most schemes are not marketed in the absence of a binding Tax Office 'product ruling'. The question then becomes 'what reliance can be placed on such a ruling?'. |
Rulings are normally qualified. In the case of one current scheme, the Tax Office qualified its ruling by stating that it referred to specified parts of the tax law, types of taxpayer, and, most importantly, did not apply if the scheme as implemented was materially different from that set out in the ruling. |
