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  • Collapse and restructure of agribusiness managed investment schemes – participant information

    Several events have caused uncertainty for investors in managed investment schemes (MIS) in the agribusiness sector. These include:

    • the scheme manager going into administration or liquidation
    • the scheme being wound up early
    • appointment of new scheme managers
    • sale of scheme assets.

    Your agribusiness MIS may have been managed by:

    • Arafura Pearls Ltd
    • Australian Bight Abalone Pty Ltd
    • Australian Olives Ltd
    • Barossa Vines Limited
    • Australian Green and Gold Pty Ltd (Brooklyn Park)
    • Environinvest Limited
    • Forestry Enterprises Australia Limited (FEA)
    • Great Southern Limited
    • Gunns Plantations Ltd
    • Palandri Wines Pty Ltd
    • Rewards Group Limited
    • Timbercorp Limited
    • Willmott Forests Ltd.

    The collapse of, or financial difficulties experienced by, these companies and others involved in the agribusiness MIS sector may have changed the tax consequences for your investment.

    Review your records – the companies listed managed a variety of agricultural and forestry businesses, and their names might not be immediately familiar. The investments included:

    • grape
    • berry
    • avocado
    • mango
    • citrus
    • olive
    • almond
    • beef
    • abalone
    • forestry projects.

    We have information to help you understand your new obligations, what you need to do, and answer any questions you may have.

    If you use a tax agent, talk to them about the effect on your tax obligations. Give them all the details about your investment to help them complete your tax return.

    All references to taxation law are references to the Income Tax Assessment Act 1997 (ITAA 1997).

    Refer to this information when preparing your tax return:

    Next steps  

    See also  

    Ongoing operation of an agribusiness managed investment scheme

    An agribusiness MIS is formed to operate primary production activities. It may carry out afforestation, horticultural, viticultural or aquacultural activities, including growing and harvesting:

    • grapes
    • berries
    • avocadoes
    • mangoes
    • citrus
    • olives
    • almonds
    • beef
    • abalone
    • timber.

    Changes to your agribusiness MIS

    Possible changes to your agribusiness MIS include:

    • the responsible entity (RE) is replaced by another entity
    • fees are changed, added or removed
    • services are not provided within the required timeframes or at all
    • finance arrangements are different to those described in the product ruling.

    Responsible entity has changed

    The appointment of an administrator or the replacement of a RE will not affect the deductibility of your expenses in relation to the agribusiness MIS.

    Where the agribusiness MIS continues to be implemented as described in the relevant product ruling (even under the management of an administrator, receiver or new RE), the ruling still applies. We continue to be bound by the ruling and you can continue to rely on the ruling.

    If a change results in a change in tax consequences for an investor, the investor can't rely on the product ruling.

    Example 1: No material difference

    Ms King invested in an MIS in 2012, and claimed deductions according to the terms of the relevant product ruling.

    In 2015, due to the insolvency of the former RE, a new RE was appointed, with no other change to the scheme.

    The change in the RE is not a material difference in the implementation of the scheme.

    Ms King can continue to claim deductions for ongoing charges, in accordance with the relevant product ruling.

    Example 2: Material difference

    Mr La Trobe invested in an MIS in 2011, and claimed deductions according to the terms of the relevant product ruling.

    In 2016, due to the insolvency of the former RE, a new RE was appointed on terms which included a significant variation to the ongoing charges to be levied on investors under the management agreement.

    The change in fees means there is no longer an objective expectation the scheme will satisfy the conditions of paragraph 35-55(1)(b) of the non-commercial loss rules contained in Division 35 of the ITAA 1997. The scheme does not meet one of the objective tests in sections 35-30, 35-35, 35-40 or 35-45, or produce assessable income for an income year in excess of deductions within the commercially viable period.

    This change constitutes a material difference to the arrangement as set out in the relevant product ruling. We withdraw that ruling.

    Mr La Trobe can no longer rely on the ruling to claim deductions for the ongoing charges.

    End of example

    See also  

    • TD 2010/7 Income tax: does a change of Responsible Entity of a registered agricultural managed investment scheme affect the tax outcomes for participants if the arrangement continues to be implemented in accordance with the relevant product ruling?

    Fees changed under the new responsible entity

    If the new responsible entity (RE) has added or removed fees, or changed the amount or structure of fees, this indicates your agribusiness MIS is being implemented differently to the arrangement described in the product ruling.

    If your agribusiness MIS is implemented in a different way, which results in a different tax outcome, you will not be covered by that product ruling.

    Check the status of the product ruling for your agribusiness by referring to the Tables of affected schemes (XLS, 516KB)This link will download a file

    Trees not planted in time

    If you hold an interest in an agribusiness (forestry) MIS, and the trees are not planted within the period set out in the product ruling, the outcome regarding your deductions claimed will depend on a number of factors.

    These include whether you:

    • carry on a business (which the product ruling will indicate)
    • made claims on the basis of      
      • carrying on a business (under section 8-1 ITAA 1997)
      • acquiring a forestry interest in a forestry MIS (under Division 394 ITAA 1997).

    We issued two Taxation Determinations that consider these issues:

    • TD 2010/14 Income tax: does a failure to plant trees intended to be established under a forestry scheme affect the timing of deductions for expenditure on seasonally dependent agronomic activities where paragraph 8-1(1)(b) of the Income Tax Assessment Act 1997 and section 82KZMG of the Income Tax Assessment Act 1936 have previously been ruled to be satisfied?
    • TD 2010/15 Income tax: does failure to plant all the trees intended to be established under a forestry managed investment scheme covered by Division 394 of the Income Tax Assessment Act 1997 mean that no deduction is allowable under Division 394 of that Act in respect of a participant's initial contribution to the scheme?

    Finance arrangements are different to those described in the product ruling

    You may have a finance or loan arrangement different to those described in the product ruling.

    As the arrangement is not covered by the product ruling, you can't rely on the ruling to support your claim to interest deductions in relation to that finance arrangement.

    You will need to seek a private ruling to confirm entitlement to deductions.

    See also  

    • TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith

    Finance arrangements with uncommercial features

    You need to be aware of whether the loan used to fund your investment in the agribusiness MIS contains any uncommercial features.

    These features are warning signs you may not be entitled to deduct any expenditure in relation to the project.

    Uncommercial features include situations where:

    • parties to the loan are related parties (they know each other)
    • interest is not charged at a commercial rate
    • there is a 'round-robin' or circular flow of funds
    • the loan is a non-recourse or limited-recourse loan – such as, where repayment of the principal or interest may only be made from proceeds of the agribusiness MIS.

    If you think your loan has uncommercial features and are unsure of whether you can claim your interest expenses, you should:

    Determine what changes were made to your agribusiness MIS

    Find out what changes have been made to your agribusiness MIS by:

    Why these changes are important

    Your agribusiness MIS arrangement was covered by a product ruling.

    Before your agribusiness MIS started, we determined whether the expenses related to it were deductible to investors. This is described in detail in the product ruling.

    The product ruling only applies to the agribusiness MIS arrangement as it is specifically described in the ruling itself.

    Any changes to that arrangement may mean the ruling no longer applies, and investors can no longer rely on that product ruling.

    If the agribusiness MIS arrangement has been implemented differently to the way described in the ruling

    If changes are significant enough to change the tax outcome for investors in the ruling, we will withdraw the product ruling.

    The notice of withdrawal will contain an explanation of:

    • how the withdrawal affects your past and future deductions
    • any special conditions regarding treatment of past or future deductions.

    Unless there are special conditions, you will be able to rely on the product ruling for expenses you already incurred and claimed up to the date it is withdrawn – as long as they are described in the ruling.

    Note: check the notice of withdrawal in relation to your agribusiness MIS to determine if any special conditions exist.

    We are working with the replacement RE to understand what changes they made to the agribusiness MIS and how those changes may affect the tax outcomes for investors.

    If those changes alter tax outcomes for investors, we will work with the new RE to issue advice to provide you with certainty.

    This advice is likely to take the form of a new product ruling.

    Next step  

    How changes to your scheme affect you

    Changes to your agribusiness MIS may affect your income tax deductions.

    This information is relevant to you if all the following apply:

    • you hold an interest in an agribusiness MIS – for example, forestry, horticulture or aquaculture
    • we issued a product ruling about the agribusiness MIS arrangement
    • the agribusiness MIS underwent changes due to financial difficulties experienced by the agribusiness MIS manager (or RE)
    • you continue to hold the interest and the agribusiness MIS has not been terminated.

    We are working closely with the RE, administrator and/or liquidator to understand the changes to your specific agribusiness MIS, and to determine any changes to your tax outcomes.

    The product ruling will be amended, or withdrawn and replaced by another ruling, where changes to the agribusiness MIS are significant enough to affect your tax outcomes.

    Next step  

    See also

    Impact on previous deductions

    What happens to previous deductions depends on your circumstances and how the agribusiness MIS arrangement was implemented.

    We will allow deductions you have already claimed – provided the agribusiness MIS was implemented in the way described in the product ruling.

    If the agribusiness MIS was not implemented in the way described in the product ruling, you may not be entitled to deductions you already claimed.

    See also  

    Non-commercial loss rules

    For individuals, the non-commercial loss (NCL) rules apply to defer losses generated from business activities. This is unless certain tests are met or the Commissioner of Taxation has exercised, or has committed to exercising, discretion not to apply the rules.

    The relevant product ruling will specify the income years when losses do not need to be deferred.

    For all other years, the NCL deferral rules will apply and you must defer those losses.

    Next step

    Check the NCL status of your agribusiness MIS by

    See also  

    How changes to your agribusiness MIS affect the operation of the NCL rules

    Changes to your agribusiness MIS may affect the operation of the NCL rules.

    If changes result in your agribusiness MIS not making a profit in a commercially viable period for the industry, you may not be covered by the product ruling.

    Expenditure you could otherwise claim as a deduction, but is deferred losses under the NCL rules, does not form part of the cost base of any asset associated with the business. It is not taken into account when calculating any capital gain or loss on the cessation of the business.

    See also

    If the RE of your agribusiness MIS is in administration

    Any commitment to exercise our discretion not to defer losses depends on what happens to the project as a result of the administration.

    Our discretion is conditional, and some events may cause it to be withdrawn.

    Whether we continue to exercise the discretion depends on both the:

    • agribusiness MIS continuing, either with the current or a replacement RE
    • continuation of the same objective expectation in relation to the timing of income being received.

    Where the commitment to exercise discretion is withdrawn or altered, we will advise of the change by withdrawing or amending the product ruling.

    If your agribusiness MIS is wound up following a period of administration, we will no longer exercise NCL discretion.

    If you claimed losses that should have been deferred

    The relevant product ruling specifies the income years when losses for your agribusiness MIS do not need to be deferred.

    Next step  

    For all other years, the NCL deferral rules will apply and you must defer those losses.

    If you already claimed a deduction for the loss, and your loss should have been deferred, you need to request an amendment to the relevant income tax return to remove the deduction for the loss.

    Next step  

    How to treat payments you receive from the agribusiness MIS

    If you receive a statement or letter from the agribusiness MIS with an amount earned, you need to include this amount in your tax return for the income year specified in the statement.

    You need to include this amount even if you did not actually receive the distribution – for example, where the amount was applied to fees relating to your interest.

      Last modified: 01 Aug 2017QC 21849