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Forests to escape rural
schemes axe
John Collett
The upfront tax deductions long cherished by high-income
investors with pre-June 30 tax problems will come to an end
for non-forestry agribusiness investment schemes.
The tax break, which allows investors to claim 80 or 100 per
cent upfront in the first year of an agribusiness scheme,
was allowed because the costs of preparing the land and
planting were incurred years before any income was received.
But the Tax Office took the view that high-income city
workers investing in, say, truffle-growing schemes were not
directly involved in "carrying on a business" in the rural
sector and should therefore be taxed in the same way as
anyone investing in managed funds and shares.
Part of the Tax Office's motivation for the clampdown was
due to the fact that the tax breaks had reached about $500
million a year.
There has also been pressure exerted on the Federal
Government by the farm lobby, complaining that the scheme
operators, with their deep pockets, have been driving up
land prices.
Despite the Tax Office's view that the tax breaks should be
removed from all agribusiness managed investment schemes,
the Government has stepped in to protect breaks for forestry
schemes.
It wants to encourage plantation development for greenhouse
gas abatement and to take the pressure off the harvesting of
native forests.
The tax breaks have been preserved for those schemes where
the operators can show that at least 70 per cent of
expenditure is going to forestry plantations.
The tax position of existing schemes is unchanged and new
schemes that start up until July 1 next year, when the
changes come into effect, will also still receive the tax
deductions.
To help increase transparency of the schemes' pricing, the
Government will establish a secondary market - a public
market for trading shares in schemes.
However, as the market will be limited to forestry schemes,
the move is being viewed as another blow to the non-forestry
agribusiness sector.
The secondary market allows an investor whose circumstances
have changed to sell their interest in a scheme. At present
they must wait until the scheme matures before they are able
to get their capital back. A secondary market will also help
with the development of a carbon trading scheme. Polluters
who need to buy carbon sinks can acquire the interests in
forestry schemes from investors who want to sell.
An investor who sells their interest after four years will
retain the tax advantage. Those who sell before four years
will lose them.
The secondary market is supposed to come into effect by July
1 but the start date is likely to be pushed back, as the
Government is still to settle on who will run the market.
The three big players in agribusiness are the ASX-listed
Great Southern, Timbercorp and Gunns. David Ikin, the public
relations manager of Great Southern, says the changes add up
to a bright future for forestry investments.
About 70 per cent of Great Southern's business is in
forestry, with grapes and olives making up most of the rest.
Ikin says though the tax component of these investments is
important, it is not the "be-all and end-all".
He says more people are using agribusiness investments
because they stack up on their investment fundamentals alone
and are being deployed in investors' portfolios by financial
planners because of their stable, long-term returns.
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