The most recent Federal Budget amendments on tax treatment of capital-protected investments may lead to better-priced products for consumers, according to the executive director of an alternative investment manager.
“Many of the capital protected products currently on offer in the market carry what was previously, the maximum allowable interest rate. What the changes demonstrate is this high funding cost was never really necessary,” Quattro executive director David Adiseshan said.
Under the new rules, an investment of this kind entered into after May 31, 2008, will be eligible for a tax deduction on the interest charged up to the Reserve Bank of Australia’s (RBA) indicator rate for standard home loans, currently at 9.45 per cent per annum.
Previously investors were claiming deductions up to the RBA’s indicator rate for personal unsecured loans, now set at 14.6 per cent per annum.
Until now interest rates charged on many of these products have been high because of in-built remuneration for advisers, Adiseshan said.
But he was quick to point out financial planners need to continue their involvement with capital protected investments and it is the product providers who must improve the processes.
“The complexity in the engine and the capital protection mechanism in most of these capital guaranteed products means that we strongly favour and strongly support advisers recommending them,” Adiseshan said.
