Definitions
Amended Assessment
An amended assessment is when the ATO re-assesses a
taxpayer’s tax liability. Amended assessments involve a more detailed review
than is the case with assessments which mainly involve the ATO accepting a
taxpayer’s return at face value.
Deductions
Money you spend to enable you to earn income. Allowable
deductions include, among other things, stationery, equipment, rent,
electricity, telephone and tools. The value of the deduction is subtracted from
assessable income to calculate your taxable income.
Non- and Limited- Recourse
Loans
In the ATO’s view, a non-recourse loan (NRL) is an
arrangement where the lender has no recourse or right to reclaim the loan
beyond a specified security of the borrower. Usually the ‘specified security’
is tied to the scheme’s earnings (eg, the sale of timber in afforestation
schemes). In other words, with an NRL the borrower is not personally at risk to
repay the loan, apart from the specified security.
A limited recourse loan (LRL) exposes the borrower to
slightly more risk than an NRL. Under an LRL the lender may have recourse to
other assets of the borrower’s, beyond the specified security. For instance,
the borrower may be required to repay the investment loan in full, even if the
income from the scheme is less than the outstanding balance on the loan.
Round Robin Financing
A round robin arrangement involves a circular ‘paper flow’
where little real capital is at stake. It often involves, according to the ATO,
the passing of documents such as cheques, promissory notes and so on among
connected parties, usually on the same day, with no change to the overall level
of cash. While it creates the appearance of a financial transaction, there is
little or no cash generated that can go into the underlying business of the
investment.
Private Binding Rulings
Private Binding Rulings (PBRs) provide certainty on the tax
benefits or consequences of an investment to individual investors. These
rulings only apply to the individual taxpayer who requested the ruling (compare
with Product Rulings below). As with Product Rulings, PBRs provide no
protection in circumstances where the investment arrangement is not carried out
in accordance with the information provided to the ATO.
Product Rulings
The ATO issues Product Rulings for individual investment
schemes. Product Rulings are intended to provide certainty for potential
investors by confirming the tax benefits of the investment. Unlike Private
Binding Rulings which apply only to individuals, Product Rulings apply to all
participants in the investment. Product Rulings relate only to the tax
consequences of the investment. They do not involve any ATO assurance as to the
investment’s commercial viability, that charges are reasonable, appropriate or
represent industry norms, or that projected returns will be achieved or are
reasonably based. A Product Ruling only applies if the arrangement is carried
out in accordance with the information provided to the ATO.
Promoters
‘Promoters’ is a general term which can include investment
scheme designers, the principals behind schemes and their managers, and those
involved in the marketing and promotion of schemes.
Tax Rulings
Tax rulings provide the ATO’s view on general matters of tax
law (such as the deductibility of expenditure in relation to investment
schemes, for instance). These have wider application than Product Rulings which
relate to single investments.
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