Review of the Managed Investments Act 1998

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      From: Peter Lowenstern []
      Sent: Wednesday, October 17, 2001 10:18 AM

Dear Mr Turnbull,

MIA Review and links to the trouble with Mass Marketed Tax Schemes.

The Law Institute of Victoria would appreciate your committee investigating whether there are any links between the trouble the Commissioner of Taxation is experiencing with so called "Mass Marketted" tax schemes (eg plantation or viticulture schemes) and the changes introduced in 1998 by the Managed Investment Act (MIA).

After the Commissioner introduced a form of public ruling known as "Product Rulings", few if any mass marketed schemes can, in practice, be sold without a product ruling. Thus it seems, the main harm to the community (and to the public purse) is when the promoters fail to carry out the arrangements set out in the ruling. Unfortunately, all too often it seems the promoters of tax schemes deviate, fail to complete the arrangement, or never start the undertaking.

This appears to be more a failure in the regulation of collective investment schemes, rather than a reason to give the Commissioner of Taxation even more powers (with consequent risks for taxpayers and advisers).

The areas of potential weakness which could be investigated are:

    • the 1998 change in the MIA to move to a single responsible entity. This tends to leave these promoters (including the unreliable ones) to be their own policeman, whereas under the previous "prescribed interest" regime there was an "investors representative" with a much more substantive role to check up on the promoter. Under the MIA regime the "investors representative" has been reduced to a mere custodian;

    • The scope of exceptions that allow these schemes to avoid regulation as a Managed Investment Scheme altogether (eg. the profession investors exemption).

The Commissioner of Taxation is investigating systems of registering mass marketed tax schemes, as occurs in the USA and perhaps other jurisdictions. The Institute suggests perhaps this should be done under the ASIC and the Corporations Act. The current definition of "managed investment scheme" would cover most if not all that the Commissioner of Taxation is concerned about, and might assist the ASIC in discharging its proper regulatory role.

Yours sincerely,

Peter Lowenstern
Senior Research Solicitor
Law Institute of Victoria




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