• 10 Forestry managed investment scheme income

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

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    Write at Q item 10 the total income from the forestry interests that the trust holds in a forestry managed investment scheme (FMIS). The amount you show at Q will depend on the points below.

    Definitions

    A forestry interest in a forestry managed investment scheme (FMIS) is a right to benefits produced by the FMIS, whether the right is actual, prospective or contingent, and whether it is enforceable or not.

    The forestry manager of an FMIS is the entity that manages, arranges or promotes the FMIS.

    A trust is an initial participant in a FMIS if:

    • it obtained its forestry interest in the FMIS from the forestry manager of the scheme, and
    • its payment to obtain the forestry interest in an FMIS results in the establishment of trees.

    A trust is a subsequent participant in an FMIS if it acquired its interest through secondary market trading. This means it acquired its interest other than as an initial participant, usually by purchasing that interest from an initial participant in the scheme.

    The amount of the trust’s total forestry scheme deductions is the total of all the amounts it can deduct or has deducted for each income year it held its forestry interest. See item 17 Forestry managed investment scheme deduction for more information on amounts the trust can deduct.

    The amount of the trust’s incidental forestry scheme receipts is the total of all the amounts it has received from the FMIS in each income year it held its forestry interest, other than amounts received because of a capital gains tax (CGT) event.

    For an initial participant in an FMIS

    Thinning receipts

    If the trust received thinning proceeds from its forestry interest, include the actual amount received at Q.

    Sale and harvest receipts – forestry interest no longer held

    If the trust ceased holding its forestry interest as a result of a CGT event (because it sold its interest or it received harvest proceeds) then include the market value of the forestry interest at the time of the CGT event at Q.

    Sale and harvest receipts – forestry interest still held

    If a CGT event happened and the trust still held its forestry interest (because it sold part of its interest or there was a partial harvest), and the trust had claimed a deduction for the amounts vested under the FMIS, include at Q the amount by which the market value of the forestry interest was reduced as a result of the CGT event.

    For a subsequent participant in an FMIS

    Thinning receipts

    If the trust received thinning proceeds from its forestry interest then include the actual amount received at Q.

    Sale and harvest receipts – forestry interest no longer held

    If the trust ceased holding its forestry interest as a result of a CGT event (because it sold its interest or it received harvest proceeds), and the trust has deducted, or could have deducted an amount, if the trust had paid the amount under the scheme in relation to the forestry interest, include at Q the lesser of the following two amounts:

    • the market value of the forestry interest at the time of the CGT event, or
    • the amount (if any) by which the total forestry scheme deductions exceeded the incidental forestry scheme receipts.
    Sale and harvest receipts – forestry interest still held

    If a CGT event happened and the trust still held its forestry interest (because it sold part of its interest or there was a partial harvest) work out the following two amounts:

    • the market value of the forestry interest at the time of the CGT event, and
    • the amount (if any) by which the total forestry scheme deductions exceeded the incidental forestry scheme receipts ('net deductions').

    Example 6 shows how to calculate the amount to include at Q where the fund sold its forestry interest

    • Use the lesser of the two amounts above in the following formula:


    amount worked
    out above




    X

    the decrease (if any) in the market value of the forestry interest
    (as a result of the CGT event)                                                                        

    the market value of the forestry interest just before the CGT event

    Use this formula to calculate the amount which is included in assessable income to the extent that the sale or harvest payment matches net deductions.

    Include at Q the amount calculated using the formula.

    Example 7 shows how to calculate the amount to include at X where there is a harvest payment made and the fund still holds the forestry interest.

    To complete this item

    Add up all the amounts you worked out for the trust’s FMIS income. Write the total at Q.

    See examples 6 and 7 for how to calculate the amount you show at Q.

    For more information on the CGT treatment of a trust’s forestry interest acquired as a subsequent participant, see Guide to capital gains tax 2013–14.

    Example 6: Sale receipts: forestry interest no longer held

    Example

    Cedar Trust is a subsequent participant in an FMIS. It sold its forestry interest at the market value of $20,000. The sale of the forestry interest is a CGT event. The original cost base was $14,000.

    In the time that Cedar Trust held the forestry interest, it claimed $4,000 in deductions (its total forestry scheme deductions) for lease fees, annual management fees and the cost of felling that it paid to the forestry manager.

    During an earlier period, it received $1,500 from thinning proceeds (its incidental forestry scheme receipts).

    Cedar Trust will need to include $2,500 (that is, $4,000 – $1,500) at Q, because this amount is less than the market value of its forestry interest at the time of the CGT event.

    End of example

    The fund will take the amount that it included at X into account when working out the amount to include at A Net capital gain. See the Guide to capital gains tax 2014.

    Example 7: Harvest receipts: forestry interest still held

    Example

    Oakey Trust is a subsequent participant in an FMIS. It received harvest proceeds over two income years. It received the first harvest payment of $5,000 in the 2013–14 income year.

    The market value of its forestry interest was $20,000 just before it received its payment for the first harvest (which is a CGT event). After it received this first harvest payment, the market value of its forestry interest was reduced to $15,000. Its original cost base was $14,000.

    During the time that it held its interest, Oakey Trust claimed $4,000 in deductions (its total forestry scheme deductions) for lease fees, annual management fees and the cost of felling that it has paid to the forestry manager. In an earlier period, it received $1,500 from thinning proceeds (its incidental forestry scheme receipts).

    Step 1 The market value of the forestry interest (at the time of the CGT event) was $20,000.

    The amount by which the total forestry scheme deductions exceed the incidental forestry scheme receipts is $2,500 (that is, $4,000 minus $1,500 for the net deductions).

    The amount to use in step 2 is $2,500.

    Step 2 Using the formula above:

    $2,500

    x

    $5,000
    _______

    =

    $625

     

     

    $20,000

     

     

     

    Step 3 As the amount calculated at step 2 is less than the amount calculated at step 1, the Oakey Trust will need to include $625 at Q in its 2014 tax return.

    Step 4 As a result of receiving the harvest receipt payment, Oakey Trust has disposed of 25% of its forestry interest. It must also calculate the amount it must include at A Net capital gain. That amount will be included in the Capital gains tax (CGT) schedule 2014 which the Oakey Trust is required to complete. For more information, see Guide to Capital Gains tax 2013–14.

    End of example
    Last modified: 30 Oct 2014QC 40282