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Ruling

Subject: Deductibility of payment for investment in forestry scheme

Question

Are you still entitled to a deduction in your income tax return for the investment in a managed investment scheme?

Answer

No.

This ruling applies for the following period

For year ended 30 June 2010

The scheme commenced on

1 June 2010

Relevant facts and circumstances

You invested in a managed investment scheme covered by a Product Ruling.

The company conducting the scheme is now in liquidation. You were an 'initial participant' in the scheme.

You claimed a tax deduction of the investment amount at Label D15 Forestry managed investment scheme deduction in your income tax return.

You have read the information available on the Australian Taxation Office (ATO) Website about Managed Investment Scheme (MIS) collapse - database of affected schemes.

This information contains the following about your particular investment:

There is a Product Ruling for the scheme; Type of scheme - Division 394 - Forestry scheme; Current Status - Advised no trees have been planted and are not likely to be; Investors in this project are not considered to be carrying on a business.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 394

Income Tax Assessment Act 1997 Paragraph 394-15(1)

Income Tax Assessment Act 1997 Section 394-20

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 104-5

Income Tax Assessment Act 1997 Section 104-25

Reasons for decision

Deduction

The Product Ruling identifies the scheme as a 'forestry managed investment scheme' as defined in subsection 394-15(1) of the Income Tax Assessment Act 1997 (ITAA 1997). It also identifies that an investor in the Project is not considered to be carrying on a business of primary production.

The deductibility of the monies invested will depend on the conditions of Division 394 and the product ruling being met.

The ruling will only apply if the company establishes all of the trees that were intended to be established under the Project within 18 months of the end of the income year in which the first 'participant' in the project has been accepted.

Information provided to the ATO (available in the database of affected schemes on our website) indicates that no trees have been planted for this project and none are likely to be planted (company in liquidation). Therefore no deduction is allowable under section 394-20 of the ITAA 1997 for the amount invested (Taxation Determination TD 2010/15).

Because you are not considered to be carrying on a business no deduction is allowable under section 8-1 of the ITAA 1997.

Capital gain or loss

The ending of your interest in the scheme as a result of that company being wound up is a CGT event, possibly event C2. A C2 event is the cancellation, surrender or similar ending to an intangible interest. The timing of the event is when the contract ending the asset is entered into or, if none, when the asset ends.

This means you need to calculate whether you have made a capital gain or capital 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 (forestry) MIS (items you have previously deducted cannot be included in your cost base). As discussed above your deduction for the invested amount has been denied, therefore this amount can be included in your cost base.

· Any capital proceeds you have received on termination of your interest.

· You will need to determine from the responsible entity or the liquidator at what time your interest has ended.

Your capital gain or loss will be calculated by deducting the cost base or reduced cost base from the capital proceeds. If you do have a capital loss it can only be offset against any capital gains you have. It cannot be offset against your ordinary income. It is carried forward as a capital loss until it is absorbed by future capital gains.