• Chapter 3: Investments in plantation forestry managed agreements

    What is a plantation forestry managed agreement?

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    You have a plantation forestry managed agreement in the year in which you incur prepaid expenditure if:

    • the arrangement entered into is for the planting and tending of trees for felling
    • you do not have day-to-day control over the operation of the agreement, and
    • at least one of the following is met:
      • more than one taxpayer participates in the agreement, or
      • the manager, arranger or promoter of the agreement, or an associate, carries out similar activities for other taxpayers.
       

    Agreements entered into where trees are planted for the purpose of obtaining harvest from fruit or other produce are not plantation forestry managed agreements.

    What prepaid expenses are covered by these rules?

    These rules apply if, under an agreement, the following requirements are satisfied:

    • the prepaid expenditure is incurred on or after 2 October 2001 and on or before 30 June 2008
    • the eligible service period for the expenditure is 12 months or less and the 12-month period ends on or before the last day of the income year following the year in which the expenditure was incurred, and
    • the expenditure is for seasonally dependent agronomic activities undertaken during the establishment period.

    What are seasonally dependent agronomic activities?

    Seasonally dependent agronomic activities include:

    • ripping and mounding a plantation site
    • applying fertiliser, herbicides or pesticides in conjunction with the planting
    • tending seedlings prior to planting, and
    • planting.

    They do not include any incidental activities of an administrative nature carried out by the manager.

    What is the establishment period?

    The establishment period for the planting of trees starts on the day when the first seasonally dependent agronomic activity is done and ends on the later of:

    • the day when the last seedling is planted under that planting program, or
    • the day when any fertiliser, herbicide or pesticide is applied to seedlings under that planting program.

    Summary of rules

    • If your prepaid expense is incurred for seasonally dependent agronomic activities that occur during the establishment period, it is immediately deductible under the 12-month rule if:
      • the eligible service period for the expenditure is 12 months or less, and
      • the period ends no later than the last day of the income year following the year in which the prepaid expense was incurred.
       
    • If your prepaid expense is not incurred for seasonally dependent agronomic activities that occur during the establishment period, or the 12-month rule is not satisfied, your deduction for the expenditure is determined in accordance with either the tax shelter arrangements (see chapter 2) or the general prepayment rules (see chapter 1).

    Example: Deduction for expenditure in a plantation forestry managed agreement

    Donald made a prepaid investment of $10,000 in a plantation forestry managed agreement on 1 June 2007. The prepaid activities are carried out within 12 months of the expenditure being incurred. An amount of $4,000 is for seasonally dependent agronomic activities that occur within the establishment period. This component of the prepaid expense is deductible in the 2006-07 income year.

    The remaining $6,000 continues to be subject to the other prepayment rules. For example, under the rules applicable to tax shelter arrangements, the deduction for that expenditure will need to be apportioned over the eligible service period.

    Last modified: 31 Aug 2010QC 19465