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  • Subsequent participants

    You are a subsequent participant if you obtain your interest in a forestry managed investment scheme (MIS) through secondary market trading. This means you acquired your forestry interest other than as an initial participant, usually by purchasing that interest from an initial participant in the scheme.

    If you are a promoter, arranger or manager of a forestry MIS, you cannot be a participant in that scheme.

    See also:

    Deductions for subsequent participants

    As a subsequent participant, you cannot claim a deduction for the cost of acquiring your forestry interest. In most situations, you will hold that interest on capital account (unless, for example, you hold it as trading stock).

    Expenses like lease fees, annual management fees or costs of felling will be deductible to you. However, these deductions will affect calculations relating to capital gains tax (CGT) events for that interest.

    Tax treatment of thinning receipts

    As a subsequent participant of a forestry managed investment scheme (MIS) an amount you receive from commercial thinning of trees is treated as assessable income for the year in which you receive it.

    Tax treatment of sale and harvests receipts

    Forestry interest no longer held

    • If you ceased holding your forestry interest because a CGT event happens (that is, you sold your interest or received harvest proceeds), and
    • you can deduct or have deducted an amount in relation to the forestry interest or you could deduct an amount if you had paid the amount under the forestry MIS in relation to the forestry interest.

    you must include the lesser of the two following amounts in your assessable income:

    • the market value of the forestry interest at the time of the CGT event, or
    • the amount (if any) by which the total forestry MIS deductions in relation to the forestry interest exceeds the incidental forestry scheme receipts.

    This means you must disregard the amount you actually received.

    Example: Tax when forest interest is no longer held

    Sam acquires a forestry interest in an FMIS as a subsequent participant. The original cost base is $14,000. Sam later sells his forestry interest at the market value of $20,000 in the current income year. The sale is a CGT event.

    In the time Sam held the forestry interest, he claimed $4,000 in deductions (the total forestry scheme deductions) for lease fees, and annual management fees paid to the forestry manager.

    During an earlier income year, Sam received $1,500 from thinning proceeds (the incidental forestry scheme receipts).

    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).

    Sam needs to include $2,500 in his assessable income. This is the lesser of the two amounts above.

    CGT notes

    Sam takes the amount he included in his assessable income into account when working out the amount to include as Net capital gain. See Working out your capital gain or loss.

    Sam's capital gain is $3,500. That is, capital proceeds of $20,000 less a cost base of $16,500. The $16,500 is made up of $14,000 plus $2,500 that was included in his assessable income.

    End of example

    Forestry interest still held

    If:

    • a CGT event happens because you sold part of your forestry interest, or there was a partial harvest and you still hold your interest, and
    • you have claimed a deduction, or can claim a deduction, or could have deducted an amount if you had paid the amount under the FMIS in relation to the forestry interest.,

    you need to work out the following two amounts:

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

    Use the lesser of the two amounts in the following formula to calculate the amount you must include in your assessable income:

    The amount worked out above multiplied by the decrease, if any, in the market value of the forestry interest (as a result of the CGT event) divided by the market value of the forestry interest just before the CGT event.

    Example: Tax when forest interest is still held

    Sue acquires a forestry interest in an FMIS as a subsequent participant. The original cost base is $14,000. She will receive harvest proceeds over two income years. Sue receives the first harvest payment of $5,000 in the current income year.

    The market value of Sue's forestry interest is $20,000 just before she receives the payment for the first harvest (which is a CGT event). After she receives the first harvest payment, the market value of her forestry interest is reduced to $15,000.

    During the time that Sue has held her interest, she has claimed $4,000 in deductions (the total forestry scheme deductions) for lease fees, annual management fees and the cost of felling that was paid to the forestry manager. In an earlier income year, Sue received $1,500 from thinning proceeds (the incidental forestry scheme receipts).

    The market value of Sue's 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).

    Sue calculates the amount she needs to include in her assessable income using the lesser of:

    • the market value of the forestry interest (at the time of the CGT event)
    • the amount by which the total forestry scheme deductions exceed the incidental forestry scheme receipts.

    The lesser value is $2,500, using the formula immediately above this example:

    $2,500 × $5,000 ÷ $20,000 = $625

    Sue needs to include $625 in her assessable income.

    CGT notes

    As a result of the partial harvest, Sue has disposed of 25% of her forestry interest. So the difference between the market value of her forestry interest before harvest, and the market value of her forestry interest after harvest, is a percentage of the market value before harvest.

    Sue must also calculate the amount that must be included as a net capital gain. See Working out your capital gain or loss.

    For current income year, Sue's capital gain is $875. That is, capital proceeds of $5,000 less apportioned original cost base of $4,125. The $4,125 is made up of $3,500 (25% of $14,000) plus $625 that is included in assessable income.

    End of example

    Keeping records

    You need to keep records of your involvement in a forestry MIS for either:

    • five years after you sell your interest
    • the year the interest ends.

    See also:

      Last modified: 01 Aug 2017QC 19576