By Stuart Washington
AFTER examining a Macquarie Bank-structured finance product for the best part of a year, the Australian Taxation Office has made no ruling on the most controversial aspect of the structure.
A tax ruling released yesterday about the Macquarie Flexi 100 product found certain investors who took the full risk in financing their investments in the product could receive a 100 per cent tax deduction on their interest bill.
However, the ruling was silent on whether investors should receive tax deductions for using ''limited recourse'' loans to finance their investment in the product; that is, loans which investors do not have to repay.
The ''limited recourse'' loans have led to concerns among some market participants of a ''round-robin'' financing structure that has no economic effect and has the sole purpose of obtaining a tax deduction on the interest payments.
The Macquarie Flexi 100 product has spawned a host of ''me-too'' imitators among other investment banks, including UBS and white-label products by the Royal Bank of Scotland.
The investments have the effect of a call option, exposing investors to an increase in an underlying asset class.
Extravagant marketing by the boutique financial advisory firm JB Global selling a product based on Berkshire Hathaway shares has included claims it is ''the ultimate Warren Buffett investment''.
Late yesterday Macquarie was advertising on its product website: ''Invest with potential for a 100 per cent tax deduction for annual interest costs if the full recourse loan is selected.''
When asked about the style of product pioneered by the Macquarie Flexi 100 last week, the Tax Office said it ''is continually looking at financial products in the market that may not conform with the law''.