After a slow and drawn out demise, the ill-fated Film Investment Corporation I invested in several years ago (last century I think!) has now been fully wound up. I'd previously received some modest dividends from my $5,000 "investment" in the Australian film industry, and this final dividend of $639.87 brings this expensive lesson to a close. I always knew that investing in films was risky, and the 100% up-front tax deduction was only attractive if there was a reasonable chance of getting a decent ROI. The Macquarie FLIC invested part of their funds in several different film projects - in the expectation (faint hope, as it turned out) that diversification would help reduce the risk of such an investment. However, this turned out to be a classic example of how diversification within an asset class can't reduce "market risk". As it happened, the entire Australian film industry produced a string of flops in the years following my investment, so nearly every project the company had invested in lost money.
The only thing I still don't understand is how come, although the wind-up and deregistration of my shares is a "capital gains event", "no capital gain or loss is likely to arise in respect of this event". The letter from the liquidator did say that "Shareholders should seek their own independent taxation advice..." but that is just the standard "don't blame us if we got it wrong" boilerplate. Since I do my own taxes I'll just have to keep an eye out for any relevant comment about the tax implications of this wind-up in the financial press, or maybe I'll write a question to one of the weekend newspaper financial columns. As far as I can tell, just because an investment was tax-deductible doesn't mean that you wouldn't pay capital gains tax if you eventually sold the investment at a profit. On that basis I was expecting my capital loss to be deductible - but what would I know.
Copyright Enough Wealth 2007