The promoters of managed investment schemes (MIS) have had a significant win against the Australian Taxation Office, according to leading law firm Hall & Wilcox, which has assessed the outcome of what amounted to a test case in the Federal Court.
The test case, Hance v the Federal Commissioner for Taxation, has clarified the tax deductibility of outgoings from a MIS.
According to an assessment by Hall & Wilcox, the full Federal Court’s decision represented a significant win for the MIS industry because it confirmed that participants in an MIS were actually carrying on a business and has knocked away a key ATO ruling on MIS.
At the same time, however, the law firm pointed out that the ATO had not entirely backed away from its position and that it had signaled in a decision impact statement that it would be closely examining future cases to ensure they had similar characteristics to the Hance case.
It also suggested that there were political sensitivities attached to the case.
“Given the potentially wide implications of the decision and the political sensitivity of its subject matter, it is in our view inevitable that the non-forestry MIS sector will be the subject of government scrutiny and may eventually by regulated by statute,” the law firm pointed out.
It also noted in reaching its decision that the court had place considerable reliance on information contained in the MIS product disclosure statement and suggested that potential investors in MIS schemes should be advised to seek independent professional advice.
