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  • 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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    Definitions

    A partnership is an initial participant in a forestry managed investment scheme (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 partnership is a subsequent participant if it obtains an interest in a forestry managed investment scheme 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 forestry manager of an FMIS is the entity that manages, arranges or promotes the FMIS.

    A forestry interest in an 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 amount of the partnership’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 you can deduct.

    The amount of the partnership’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. Write at Q item 10 the total income from the following activities for each FMIS in which the partnership holds a forestry interest.

    For information on the CGT treatment of the partnership’s forestry interests, see the Guide to capital gains tax 2019. If the partnership is a member of a collapsed agribusiness managed investment scheme, for information on calculating your income and deductions, see Collapse and restructure of agribusiness managed investment schemes – participant information.

    For an initial participant in an FMIS

    Thinning receipts

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

    Sale and harvest receipts – forestry interest no longer held

    Include the market value of the forestry interest at the time of the CGT event at Q if the following applies:

    • a CGT event happened and the partnership ceased holding its forestry interest (because it sold its interest or it received harvest proceeds), and
    • the partnership
      • has claimed a deduction, or
      • can claim a deduction, or
      • would be entitled to deduct such amounts, but for a CGT event happening within four years after the end of the income year in which the partnership first pays an amount under the FMIS.
       
    Sale and harvest receipts – forestry interest still held

    Include the amount by which the market value of the forestry interest was reduced at Q if the following applies:

    • a CGT event happened and the partnership still held its forestry interest (because it sold part of its interest or there was a partial harvest) and
    • the partnership
      • has claimed a deduction
      • can claim a deduction, or
      • would be entitled to deduct such amounts, but for a CGT event happening within four years after the end of the income year in which the partnership first pays an amount under the FMIS.
       

    For a subsequent participant in an FMIS

    Thinning receipts

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

    Sale and harvest receipts – forestry interest no longer held

    Include the amount worked out below in the total amount at Q if the following applies:

    • a CGT event happened and the partnership ceased holding its forestry interest as a result of a CGT event (because it sold its interest or it received harvest proceeds) and
    • the partnership has deducted, or can deduct or could have deducted an amount, if it paid the amount under the FMIS.

    Work out in relation to the forestry interest 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

    Include the amount worked out below in the total amount at Q if the following applies:

    • a CGT event happened and the partnership still held its forestry interest (because it sold part of its interest or there was a partial harvest), and
    • the partnership has deducted, can deduct or could have deducted an amount it had paid the amount under the FMIS.

    Work out the lesser of the following two amounts, in relation to the forestry interest:

    • 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').

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

    Divide the decrease (if any) in the market value of the forestry interest as a result of the CGT event by the market value of the forestry interest just before the CGT event. Multiply the result by the lesser of the two amounts above.

    Include at Q the amount calculated using the above formula.

    In a future income year (a year in which the partnership receives further proceeds from a harvest or the sale of its forestry interest), disregard the amount of the 'net deductions' that has already been reflected at Q.

    To complete this item

    Add up all the amounts you worked out for the partnership’s FMIS income and write the total at Q.

    See examples 7 and 8 for how to calculate the amount you show at Q where the partnership is a subsequent participant that holds the forestry interest on capital account.

    For more information on the CGT treatment of a partnership’s forestry interest, see the Guide to capital gains tax 2019.

    Example 7: Sale receipts – forestry interest no longer held

    Cedar Partnership 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 Partnership 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. In the same period, it received $1,500 from thinning proceeds (its incidental forestry scheme receipts).

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

    CGT notes:

    • Cedar Partnership will take the amount that it included at Q into account when working out the partners' share of the capital gain relating to the CGT event.
    • The capital gain to be shared by the partners would be $3,500, which is capital proceeds of $20,000 less cost base of $16,500 (that is made up of $14,000 plus $2,500 that was included in assessable income).
    End of example

     

    Example 8: Harvest receipts – forestry interest still held

    Oakey Partnership 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 2018–19.

    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.

    In the time that it held its interest, Oakey Partnership 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. 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) is $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).

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

    Step 2 Using the formula above:

    The calculation is $5,000 divided by $20,000. The result is multiplied by $2,500. The outcome of the calculation equals $625.

    When determining the amount to include in step 2 for any future income year in which the partnership receives harvest proceeds or sells the forestry interest, the $625 is disregarded. This is because the amount is already reflected in the assessable income for the current income year.

    Step 3 Oakey Partnership will need to include $625 at Q.

    CGT notes:

    • Oakey Partnership has disposed of 25% of its forestry interest. The partnership will take the amount that it included at Q into account when working out the partners' share of the capital gain relating to the CGT event.
    • The capital gain to be shared by the partners would be $875, which is capital proceeds of $5,000 less apportioned original cost base of $4,125 (that is made up of $3,500 (25% of $14,000) plus $625 that is included in assessable income).
    End of example
    Last modified: 30 May 2019QC 58661