Forestry managed investment schemes (Division 394)
Rules about deductions for contributions to a forestry managed investment scheme (MIS) where that scheme is a qualifying scheme came into effect from 1 July 2007. The rules aim to encourage the expansion of commercial plantation forestry in Australia through the establishment and tending of new plantations for felling.
If you are an initial participant in a qualifying forestry MIS you can deduct amounts in the year of payment.
The treatment of a qualifying forestry MIS also allows for secondary-market trading of interests in such schemes. As a result, there are two different types of investors:
- initial participants – who can claim statutory deductions
- subsequent participants – who cannot claim a statutory deduction and hold the forestry interest on capital account (unless held as trading stock).
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To be considered a qualifying scheme, the forestry manager needs to show both of the following:
- there is a reasonable expectation at least 70% of investor contributions will be spent on direct forestry costs during the life of the project
- the plantation is established as intended within 18 months of the end of the income year in which an amount is first paid under the scheme by an investor.
Forestry managers need to notify us when they first receive a contribution from an initial participant in a qualifying scheme.
Forestry managers also need to tell us if the plantation is not established as intended within the required 18-month period.
Investigate before you invest
You need to investigate any schemes before you invest – be cautious about schemes that promise substantial tax benefits. If an investment seems too good to be true, it probably is.
Early termination of an agribusiness (forestry) managed investment schemes
There may be tax consequences if you are a participant in a forestry managed investment scheme (MIS) that is to be terminated or has been wound up early.
If we have previously issued a product ruling on the tax consequences for participants of a forestry MIS, whether it is a Division 394 forestry managed investment scheme or not, you can find both specific and general guidance on what you need to do.
- Check the status of your forestry agribusiness by
A forestry managed investment scheme (MIS) can have two different types of investors – initial participants and subsequent participants.
You are an initial participant if you meet all of the following conditions:
- the scheme is a qualifying scheme
- you obtained your forestry interest from the forestry manager of the scheme
- the payment you make for your interest results in the establishment of trees.
As an initial participant, you will be able to claim an immediate deduction for your contributions in the year you make them.
If you have not acquired your forestry interest as an initial participant, you are a subsequent participant and cannot claim a deduction for your acquisition costs.
If you are a promoter, arranger or manager of a forestry MIS, you cannot be a participant in that scheme.
Before you claim a deduction
You need to make sure your scheme is a qualifying scheme before you can claim a deduction as an initial participant. Contact the forestry manager and check the scheme documentation first.
For many forestry managed investment schemes, we have issued a product ruling that explains the tax consequences of the arrangement. It provides protection to investors as long as the scheme is implemented as described in the product ruling.
To check whether a product ruling has issued for your scheme, you can access the list of published product rulings on our legal database.
Tax treatment of thinning receipts
As an initial participant of a forestry managed investment scheme, the actual amount you receive from commercial thinning of trees is treated as assessable income in the year in which you receive it.
Tax treatment of sale and harvest receipts
Forestry interest no longer held
You must include the market value of the forestry interest at the time of the CGT event in your assessable income if you:
- cease holding your forestry interest because a CGT event happens (for example, you sold your interest or received harvest proceeds)
- have 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 you first pay an amount under the forestry managed investment scheme.
Forestry interest still held
You must include the amount by which the market value of the forestry interest was reduced as a result of the CGT event in your assessable income, and not the amount you actually receive. This is if both:
- a CGT event happens because you sold part of your forestry interest or there was a partial harvest and you still hold your interest
- you have 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 you first pay an amount under the forestry managed investment scheme.
Selling a forestry interest held for less than four years
As an initial participant, you can trade your interest in the forestry managed investment scheme (MIS) at any time. However, to continue to be entitled to a deduction for the amount paid for your forestry interest, you must hold that interest for four years after the income year in which you first pay an amount under the scheme.
If you do not hold your forestry interest for four years, you:
- will no longer be entitled to the deduction for the amount paid for your interest, including an amount you may already have claimed in previous years
- will still be assessed on the proceeds of the sale
- may be liable to pay interest and penalties on any tax underpaid as a result.
However, if you dispose of your interest because of circumstances outside your control, a deduction will continue to be allowed. This is provided you could not have reasonably foreseen the circumstances of the disposal happening when you first acquired the interest.
Circumstances generally outside your control may include:
- compulsory acquisition
- insolvency of yourself or the forestry manager
- cancellation of the interest due to fire, flood or drought.
This also applies to investors in a non-Division 394 forestry MIS who dispose of their interest after 1 July 2007 and within four years of the first income year in which they claimed a deduction for that scheme.
Selling a forestry interest held for four years or more
If you sell your forestry interest after you've held it for four years or more, your right to the deduction for your contributions to the forestry managed investment scheme will be preserved.