Capital gains ruling bad news for investors

A growing number of small retail buyers, wealthy individuals and superannuation funds in the $2 billion market for structured investment products could be facing a capital gains tax bill on unrealised gains.

A controversial draft ruling from the tax office, with retrospective effect, means that investors in structured products that include a deferred purchase agreement could be forced to sell assets to fund a capital gains tax bill, reports The Australian Financial Review.

These products, sold by Macquarie Bank, Citigroup, Commonwealth Bank and JP Morgan, have become popular because they give investors exposure to movements in indices such as foreign equity markets, and deliver investment returns in domestic shares instead of cash.

The tax office ruling runs counter to the advice to investors in product disclosure statements that told investors no tax was payable on the delivery of shares until ater they were eventually sold.