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  • Early termination of an agribusiness (non-forestry) MIS

    This information is about the possible tax consequences for an investor in an agribusiness (non-forestry) MIS that is terminated early.

    This information is relevant to you if:

    • you hold an interest in an agribusiness (non-forestry) MIS
    • there is a product ruling issued for the MIS
    • you have claimed deductions in relation to your MIS interest
    • the MIS is to be terminated or has been wound up early.

    This is general information only.

    Purpose of an agribusiness (non-forestry) MIS

    An agribusiness (non-forestry) MIS is formed for the purpose of primary production and may carry out horticultural, viticultural or aquacultural activities.

    This may include growing and harvesting:

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

    How to determine if your agribusiness (non-forestry) MIS was terminated early

    An agribusiness (non-forestry) MIS will be terminated early if it is wound up before the planned end of the arrangement.

    This is usually the result of some event that means the agribusiness (non-forestry) MIS is no longer viable.

    You can confirm the status of your agribusiness (non-forestry) MIS by:

    If your interest is terminated early

    We will withdraw the product ruling if your interest is terminated early.

    The notice of withdrawal will contain an explanation of:

    • how the withdrawal affects your past and future deductions
    • any special conditions on how you treat those deductions.

    If there are no special conditions, you can rely on the product ruling up to the date specified in the notice of withdrawal for deductions you already incurred and claimed, as long as the:

    • deductions are as described in the product ruling
    • MIS was implemented as described in the product ruling.

    Check the notice of withdrawal to determine if any special conditions exist for deductions in relation to your investment in the agribusiness (non-forestry) MIS.

    Next step:

    How capital gains tax applies

    Ending your interest in the agribusiness (non-forestry) MIS as a result of the MIS being wound up is a capital gains tax (CGT) event. This is possibly as a result of the cancellation, surrender or forfeiture of your investment in the MIS (referred to as a CGT Event C2).

    You need to calculate whether you made a capital gain or loss from the event.

    You can calculate your capital gain or loss by identifying each of the following elements:

    • the cost base or reduced cost base of your interest in the agribusiness MIS (items you previously deducted cannot be included in your cost base)
    • any capital proceeds you received on termination of your interest (amounts you receive may not be capital proceeds, but may be business income as discussed in TD 2010/9).

    Your capital gain or loss is calculated by deducting the cost base or reduced cost base from the capital proceeds.

    Example 1: Calculating capital gain or loss when interest ends

    Mr Collins acquires an interest in an agribusiness viticultural MIS in 2015 for $5,500. He pays the fees using debt finance from the financier identified in the product ruling and claims deductions of $5,500.

    In 2016, the MIS ceases to operate due to the insolvency of the RE and Mr Collins' interest ends. This is beyond his control, and he remains entitled to deductions he previously claimed.

    To calculate if he makes a capital gain or loss from the ending of his interest, Mr Collins needs to identify the cost base. Fees and interest paid cannot be included as these amounts are deductible in full.

    The cost base is likely to be nil. This is because Mr Collins has already received a deduction for all amounts he paid in respect of his investment, and there are no remaining amounts to be included in his cost base.

    When his interest ended, Mr Collins received an amount from the sale of fruit, but no capital proceeds. Since no capital proceeds were received, he is taken to have received the market value of the interest.

    The responsible entity has valued the MIS interest at nil.

    Therefore, Mr Collins does not make a capital gain or loss from the ending of his interest.

    Note: The amount Mr Collins receives from the sale of fruit is business income, and must be disclosed in his income tax return.

    End of example

    See also:

    • Introduction to capital gains tax
    • TD 2010/9 Income tax: is a payment received by an investor in a non-forestry managed investment scheme upon the winding-up of the scheme, that does not involve the disposal of your interest in the scheme to another person, necessarily ordinary or statutory income under the Income Tax Assessment Act 1997?

    Deductions claimed in earlier years

    The Commissioner will allow deductions you 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.

    Next step:

    See also:

    • TD 2010/8 Income tax: does the disposal or termination of an interest in a non-forestry managed investment scheme which arises as a result of circumstances outside the control of the taxpayer result in the denial of deductions previously allowed under paragraph 8-1(1)(b) of the Income Tax Assessment Act 1997 in respect of your contributions to the scheme?

    Interest deductions

    If you are still paying interest on a loan for your investment

    Even though your interest in the MIS ceased, you can continue to claim a deduction for interest on the loan for the term of the loan. This is provided:

    • the loan was implemented in accordance with the finance arrangements identified in the product ruling
    • the purpose of the loan was to invest in the MIS with the intention to derive assessable income from it
    • you intended to keep your interest in the MIS for the duration of the MIS
    • you genuinely incurred the interest expense and have a current legal obligation to make repayments on the loan
    • a direct connection continues between the loan and your investment in the MIS.

    Where a business activity has ceased, ongoing interest will continue to be deductible. This is unless an event or circumstance occurs to break the connection between the loan and the business activity.

    If you refinance, renegotiate or alter the purpose of the loan, the connection to the income earning activity may be broken and the interest may no longer be deductible.

    See also:

    • TR 2004/4 Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities – refer to paragraph 50 for guidance on identifying if the connection still exists

    Next steps:

    If you refinanced your loan with a higher interest rate and are unsure if you can continue to claim your interest expenses:

    Claiming borrowing expenses for your loan

    You can claim borrowing expenses as a deduction in instalments over a five-year period, or the life of the loan, whichever is less.

    You can continue to claim a deduction for borrowing expenses as stated in the product ruling.

    Non-commercial loss (NCL) rules

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

    The relevant product ruling specifies the income years when losses do not need to be deferred. For all other years, the NCL deferral rules apply and you must defer those losses.

    Next step:

    See also:

    NCL rules that continue to apply

    Once your MIS interest ceases, you no longer carry on a business. This means the NCL rules will not apply to any future deductions, such as ongoing interest expenses.

    However, losses that deferred under the NCL rules continue to be deferred until either:

    • the activity recommences
    • you undertake a similar activity and you earn assessable income.

    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 included when calculating any capital gain or loss on the cessation of the business.

    Next step:

    See also:

    If you claimed losses that should have been deferred

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

    Next step:

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

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

    Next step:

      Last modified: 01 Aug 2017QC 21849