Taxation
Today I had an interesting conversation with an employee of ASIC. I asked the employee why wasn't ASIC doing anything about members of various group encouraging member of the FMF to vote in support of distributions from the FMF.
I complained why didn't ASIC make the manager retract its statements about possible future distributions.
The employee said she wouldn't comment - I was disappointed. I said (words to the effect of) "well, if I went to a bank and invested $1000, and then the bank lost $500, but in a week's time contacted me and said 'We've found $100 of the missing $500 but were going to pay you as interest', what would you expect would happen?'
I said (words to the effect of) that no one would accept that - getting one's own money back as an interest payment and having it taxable is just a nonsense.
I then said the FMF was like that and with all its debt, losses, and impairments, the fund would not be capable of deriving an income and so could not pay distributions.
She would not comment and said it was not a matter for ASIC. I was stunned, if the payment of capital from a fund as distributions is not a matter for ASIC, then what was a matter for ASIC?
She suggested I phone the tax office.
I phoned the tax office and the officer told me that ASIC should have dealt with the issue. The officer further advised me that there was nothing I could do until such a payment was made, and then I would be able to make a complaint to the ATO about the payment. That was good news.
It was also good news that the ATO would accept a complaint from an investor if that investor believed that he/she had paid tax on distributions from a managed fund in the event that managed fund had done no more than return capital as distributions - that investor may be entitled to a tax refund.
It seems that today was a day of enlightenment, ASIC failed to act, but the ATO was ready to act - impressive thought - I'm not normally happy about the ATO but I confess I was today.
For whatever reason, completely isolated from my experiences, this afternoon the manager of the FMF issued this statement by email to a member of the FMF Coffee Club:-
"... Good afternoon Ian,
It is a delightfully short answer for you: We are acutely aware of the tax consequences of different types of potential “payments” (our preferred choice of word) to Unitholders and would seek professional advice regarding the best interests of Unitholders before proceeding with any payment.
My further comments are that in its present form there is no way I can see in the foreseeable future that the Fund could generate “accounting net income” which could be “distributable” to Unitholders and thus taxable in their hands. Conventional redemptions are not currently possible due to the $1 per unit fixed redemption price (stuff-up by CPL) in the Constitution. Hence any potential payment from the Fund to Unitholders would be in the character of a “return of capital”.
Regards, Rodger Bacon......" (emphasis added)
httphttp://finance.groups.yahoo.com/group/FMF_coffee_club/join
If the manager wants to change the 'form' of the FMF, then let's see the meeting, and at that meeting it will be the manager that has to jump the 75% hurdle.
Even introducing a VUP will not allow for distributions, but the manager is free to dream as managers do.
We have been battling this issue for a long time - there have been far too many trading on the needs of investors by promising them something that cannot be delivered.
I live in sincere hope that there will be no more false promises about distributions from the FMF.
Damn those who live to deceive.
No thanks to ASIC - thanks to the ATO for giving me a backstop to my beliefs.