DESCRIPTION
A taxpayer purports to enter into a partnership which claims to be in the business of acquiring and disposing of prepaid service warrants. 2. The partnership claims to buy a series of warrants that are redeemable for services from an offshore seminar provider ("service provider"). 3. The partnership acquires a series of warrants, for example, for a face value of $50,000 by paying $6,250 (or 12.5% of the face value) with the balance owing to the service provider. No 'loan' agreement is evident for the balance owing. 4. The arrangement is entered into at the end of the financial year. 5. The partnership's objective is to endorse the warrants over to a client for a fee so the client can redeem them for financial and wealth creation seminars from the service provider. There is a question as to whether any warrants are actually made available to the partnership. 6. All warrants that have not been endorsed over to clients by the end of a 12 month period will be re-purchased by the service provider at a 12.5% discount of their face value. In the example at paragraph 3, this is the amount equal to the balance owing. 7. It is claimed that the purchase of the warrants by the partnership will give rise to a loss in the partnership for the face value of the warrants in the year that the warrants are acquired. 8. It is claimed that on endorsing the warrants over to the client or on the re-purchasing of the warrants by the service provider the partnership would derive assessable income. If the warrants are endorsed or repurchased any assessable income would not be derived until the subsequent year. 9. The partners claim a share of the partnership loss in their tax returns.