Profit wobbles see tax effective schemes out of favour

Tax effective schemes are the latest victims of the economic downturn and the drought, industry experts say.

Reduced demand has seen sales of tax effective schemes fall by 30% this year, as investors realise they may face losses instead of taxable profits. The drought, especially around the Murray River, has also affected agriculture. And there is growing uncertainty about how the tax office might treat some tax effective schemes in the future.

Managing director of research company Adviser Edge, Shane Kelly, says the managed fund investment scheme industry received $1.25 billion of funds last year but estimates that could fall to $900 million this year. He says it is the first decline since 2003. “The businesses are being affected by global uncertainty, tax uncertainty and the drought.”

Kelly says investors in these schemes are primarily individuals who are looking to reduce their tax and investments made through self managed superannuation funds.

However the long term outlook for tax effective schemes is good. “People don’t like to pay tax,” he says. He adds that the agribusiness outlook is positive. “When you look at where global food markets are going and the soft commodity boom, agribusiness can have a positive effect if the weighting in a portfolio is correct.”

He says there is also growing uncertainty about treatment from the tax office after non-forestry products that involved olives, pearls, almonds and vineyards were closed to favourable tax treatment on 15 June. The industry is waiting on a test case to be run by the tax office in November.

Terry Hayes, senior tax writer at Thomson Reuters, says in the short term there will be less of these schemes around. “The wobbly market and credit crunch is making people more cautious about where they invest their money. Also people over 60 are investing money in super, which is tax free.”

But, Hayes says, more schemes will appear in the future which will whet investor appetites. “The tax office will keep looking at them though, so people have to be very careful about where they put their money.”

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