Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051189936199

Date of advice: 15 February 2017

Ruling

Subject: Transfer of ownership of interest in forestry managed investment scheme

Question:

Are you required to include in your assessable income the market value of the lots in the forestry managed investment scheme (FMIS) when you transfer ownership of the lots to the trust?

Answer:

Yes.

This ruling applies for the following periods:

Year ending 30 June 20BB

Year ending 30 June 20CC

Year ending 30 June 20DD

Year ending 30 June 20EE

Year ending 30 June 20FF

Year ending 30 June 20GG

Year ending 30 June 20HH

Year ending 30 June 20II

The scheme commenced on:

1 July 20AA

Relevant facts and circumstances

Several years ago you purchased lots in a FMIS (the forestry interest) from the manager of the scheme.

You have claimed deductions for expenditure in relation to your investment.

A return on your forestry interest is expected in 20HH

You intend to transfer ownership of your forestry interest to your family trust.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 104-60

Income Tax Assessment Act 1997 section 118-20

Income Tax Assessment Act 1997 section 394-25

Reasons for decision

All legislative references below are to the Income Tax Assessment Act 1997 unless otherwise indicated.

Forestry managed investment schemes

Generally income is assessable and expenditure is deductible under sections 6-5 and 8-1 respectively. However, some amounts that may not be assessable or deductible under those general provisions may be made specifically assessable or deductible by particular legislative provisions.

For example, the tax treatment of forestry managed investment schemes (FMIS) is specifically provided for by Division 394.

A FMIS can have two different types of investors - initial participants (section 394-25) and subsequent participants (section 394-30).

If you are an initial participant and a CGT event happens to your forestry interest such that you no longer hold it (for example, you dispose of or transfer your forestry interest) then section 394-25 requires you to include in your assessable income the market value of the forestry interest just before the event.

The following example was provided in the Explanatory Memorandum that accompanied the introduction of Division 394 (The Explanatory Memorandum to the Tax Laws Amendment (2007 Measures No.3) Bill 2007):

    Example 9.1

    Helen subscribed to a forestry scheme managed by Australian Forests Limited (AFL) for $9,000 in June 2008. Investors in AFL interests are required to contribute an annual management and services fee of $1,000 in each July starting July 2009.

    In October 2012, Helen sells the interests for $11,000.

    Helen includes the amount of $11,000 in her assessable income on revenue account for the year ended 30 June 2013 in accordance with section 394-25.

    Helen will have also obtained under section 394-10 a deduction of $9,000 for the acquisition costs of the AFL interests in the year of income ended 30 June 2008 and of $1,000 for the annual management and services fee in each income year ended 30 June 2010 to 30 June 2013.

Capital gains tax

CGT event E2 happens if a taxpayer transfers a CGT asset to an existing trust (section 104-60). The time of CGT event E2 is when the asset is transferred.

Section 118-20 prevents double taxation by reducing a capital gain by any amount that has also been included in a taxpayer's assessable income under another provision of the tax law, as a result of the CGT event.

Application to your circumstances

You intend to transfer your forestry interest to the family trust. Section 394-25 will apply to include the market value of the forestry interest just before the transfer, in your assessable income.

The transfer of ownership will also be a CGT event. However, the anti-overlap provision section 118-20 will apply so that any resulting capital gain will be reduced by the amount included in assessable income under section 394-25.