Banks are being called on to step up their game, following revelations potentially illegal loan structures are being promoted to investors.
Following comments from lawyer Mark Halsey that many brokers and advisers are “unaware” they may be breaching tax law
, a number of brokers contacted Australian Broker
to give their understanding of the legislation - and we sought clarification from the ATO
While some readers commented that the legislation was common knowledge, others expressed surprise at the extensiveness of the practices the ATO considered prosecutable offences, furthering highlighting the complexity of the legislation and potential misinformation in the industry.
But brokers and advisers are not the only players in the game, warns FBAA president Peter White
“The banks need to step up to the plate and ensure as best they can that these products are not being manipulated,” says White. “I do not believe the broker market is ripe with them being the main perpetrator of such undertakings, and I would suggest that banks also need to look inwardly/internally very carefully at this ‘potential’ practise as well.”
This sentiment was echoed by a number of Australian Broker
subscribers, with reader Chris C labelling the legal system “one-sided and short sighted” in its approach.
“Notice also it’s the advisors and the brokers being held responsible in these comments - no mention of the banks who facilitated the accounts and the bank staff who approved them, or are they too big to chase?”
Assistant commissioner Wayne Barford, however, rejected this argument, stating that the loan products themselves are perfectly legal, and it is the structures set up by financial advisers and brokers that are the issue.
White stresses to brokers that advisers, accountants and lawyers are the experts in these fields, and brokers should be wary of giving advice they are not qualified to give.
“Any breach of law or potential breach of law is always a concern and people need to ensure they have expert qualified advice in all matters – herein is one, tax law, leave it to the experts to give the advice upon… And as commented by one of your readers, Hart went to prison.”
MFAA president Phil Naylor agrees, but does not discourage brokers from giving general financial advice.
“While brokers can’t provide tax advice, they can and should suggest appropriate finance,” says Naylor. “Most financial transactions have a tax consequence, and borrowers should be referred to accountants for that advice.”
Naylor also further clarified the MFAA’s stance on these kinds of structures.
“Any sensible person would repay non tax deductable loans before tax deductable loans. Many individuals arrange their affairs in this way on their own account, and that appears entirely legal and sensible,” he says. “It is unfair that when a lender, broker, or accountant suggests that such a structure be used that it could be a scheme. This prevents ‘ordinary Australians’ being helped to manage their affairs properly.”
This is an issue that has been around for some time, says Naylor, adding that the MFAA gave advice to member on it in both 2011