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What has been done to improve Long Term Investments (LTI’s)?March, 2008
Long term investments (LTI’s) or Tax Effective Investments (TEI) have a tumultuous history. They received enormous amounts of bad publicity in the early 1990’s after being publicised and sold to naïve investors by unscrupulous promoters. This article looks at what has been done through legislation, the global demand for commodities and industry improvements over the last few years to rectify these alternative investments. What are LTI’s? Generally placed in the alternative investment asset class, LTI’s embrace investments in the agriculture, entertainment, franchise and film industries, commonly providing incentives for investors in the form of up-front tax deductions. In this article, we are going to focus our efforts on the agriculture industry. What has been done? After years of bad publicity, unscrupulous promotions and poorly produced and managed products, LTI’s resurgence came after the introduction of the Managed Investments Act coupled with Australian Tax Office (ATO) Product Rulings system in 1998. These investments are legally required to produce a Product Disclosure Statement (PDS), familiar to most investors who take part in shares or managed funds. In addition, they are required to submit a Product Ruling Statement with the ATO, which will determine the deductibility of the project. “The increased security and assurance provided by the ATO was warmly welcomed by financial planners and investors”, recalls Marilyn Bee, Senior Consultant and Investment Director. “It provided certainty and sureness in the tax deductibility of agribusiness investments.” Despite improvements in the industry, a product ruling has not assured the commercial viability of the investment. However, the efforts of Independent Research Houses, such as the Australian Agribusiness Group (AAG), have helped investors and financial advisors alike to identify investment grade projects. “It’s not an easy task identifying quality and investment grade projects. Investment research and ratings really helps in the process”, confirms Marilyn. The Financial Services Reform Act, introduced in 2001, established a new regime for the regulation of the provision of financial services, including LTI’s. Those promoting investments and providing advice now require an Australian Financial Services License (AFSL). Furthermore, the industry itself has helped to alleviate the bad publicity gained in the early 1990’s through sound management, increased use of technology, pre-determined sale contracts and higher quality products. Global factors have also contributed to the resurgence, the global population is growing and there is currently a food shortage. According to the Department of Agriculture, Fisheries and Forestry, Aquaculture is the fastest growing primary industry in Australia and the fastest growing food producing sector in the world. “Australia, with its soft commodity economy, is in a great position to benefit from this global opportunity”, explains Marilyn. Tuna and pearls currently represent the largest portion of industry revenue, with exceptional growth in other key exports such as salmon, edible oysters, farmed prawns and trout. The Australian government has also contributed by signing free trade agreements (FTA) with countries such as the USA, Thailand and Singapore. What are the benefits of investing in LTI’s? They are often favoured by those investors in higher tax brackets, with the key feature of these investments usually being the tax benefit gained. “Structured correctly, the investors can usually get immediate upfront tax deductions”, Marilyn explains. “Tax and GST refunds received can then be used to diversify a client’s portfolio, especially considering their low correlation with traditional investments classes such as equities, fixed interest and cash.” “We try to educate clients to firstly look at the commercial viability of the business, and then, the tax benefits gained,” stresses Marilyn. “It is imperative that you don’t invest just for the tax benefit. The most important thing is the quality of the underlying investment and to confirm that the investment is supported by product rulings issued by the ATO.” Marilyn emphasises that these investments are not for everyone. “While these investments can potentially result in higher returns, they must be appropriate for you”, he explains. “You should seek professional advice to determine if these strategies are right for your personal and financial situation”. Visit www.financialprofessionals.com.au to talk to a professional adviser about long term investments. Contact details: |
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