Tax-effective “investments” are perhaps a little less popular now than they used to be (for which we can thank Great Southern and Timbercorp), but every now and then they raise their ugly head and people ask us if it’s really worthwhile.

Generally speaking, and without giving specific financial advice (of course), I like these things about as much as I like cleaning up after a tenant has trashed a property. There are two main reasons for this;

  • As far as return on investment goes, rarely do we see one of these things make any sense, and,
  • As we’ve already hinted in this tax planning series, doing things purely for a tax benefit doesn’t make any sense either.

After all, if all you want is a massive tax deduction, just let me know and I’ll happily write you an invoice.

The tax office like to warn people about some of the more dodgy schemes, as well. We received an email from them today, which I’ve quoted (in part) below for you;

Making investment decisions – have you done your research?

Are you considering a tax-effective investment? It’s important you have all the facts to make an informed decision.

Some investments offer tax benefits such as reducing assessable income or increasing deductions, but end up being outside the law. You can check with the ATO to ensure promised tax benefits will be available.

Find out as much as you can about an arrangement before investing. Make sure the arrangement has a prospectus or product disclosure statement and get independent advice about the promised tax benefits from a professional advisor. A person associated with the scheme is not independent.

Start by visiting and read the Investigate before investing fact sheet. It provides information about tax effective investing and how to detect potential tax avoidance schemes.

You can also check if the arrangement you’re considering is covered by an ATO product ruling confirming the tax benefits, or if a Taxpayer alert has been issued warning about the arrangement.

Doing your research will help you avoid negative consequences including having to repay tax and incurring interest and penalties.

So not only do these things (in our experience) often fall short of the expected return, the tax office are also suggesting that many of them will not provide the expected tax benefit, either.

Personally, I think that there are much better ways of organising your affairs to reduce your tax burden.