Taxation Incentives to Establish Forests
New arrangements for Forestry Managed Investment Schemes
Following consultation the Australian Government announced on 21 December 2006 new arrangements for the taxation of investments in forestry MIS. In developing the content of the new arrangements the Treasury, Australian Taxation Office, Department of Prime Minister and Cabinet, and the Department of Agriculture, Fisheries and Forestry consulted extensively with stakeholders.
The new taxation arrangements for investments in forestry MIS came into effect on 1 July 2007. The arrangements encourage further expansion of the plantation estate and support investment in long rotation plantations by allowing trading of MIS investments, including existing MIS plantations.
Importantly, the arrangements require 70 per cent of investor funds to be directly allocated to forestry costs, such as land rental, plantation establishment, tending and harvesting. This requirement aims at minimising fees and commissions and encouraging higher returns to the MIS investors. This requirement is critical for three reasons:
- it sends a signal to the community that the Government is serious about viable plantation development
- it addresses perceptions that these schemes have been structured for the purposes of tax minimisation; and
- it will discourage promoters from charging excessive fees and commissions.
The forest industries were extensively consulted in the development of the new arrangements which now address some issues that industry has been concerned about. These include:
- extending the time for planting from 12 to 18 months to allow for the consideration of seasonal conditions; and
- allowing secondary trades in investments after a holding period of four years.
The latter is important as it will assist with the liquidity of investments and contribute to the development of pricing information within the market place. It is anticipated that secondary market trading may encourage the development of longer rotation plantations for structural grade timber.
Secondary Markets for Forestry Managed Investment Schemes
Consistent with the Australian Government’s announcement on new taxation arrangements for forestry MIS the Treasury and the Department of Agriculture, Fisheries and Forestry completed a review of options for developing secondary markets in forestry MIS, and reported back to Government on 22 March 2007.
As a result of this review the government decided to allow investors in forestry MIS to trade their interests once they have been held by the initial investor for a period of four years. This measure applies to interests in pre existing schemes, meaning that taxpayers who invested in a forestry MIS prior to 1 July 2003 were able to trade their interests from 1 July 2007.
Carbon Sink Forests
Carbon sink forests are grown for the dedicated purpose of removing carbon dioxide from the atmosphere and are important in reducing Australia's greenhouse gas emissions. From 1 July 2007, growers can claim a tax deduction for the expense of establishing trees in a carbon sink forest under Subdivision 40-J of the Income Tax Assessment Act 1997. The introduction of this deduction is intended to encourage the establishment of forests for the dedicated purpose of absorbing carbon dioxide from the atmosphere.
Further details can be obtained from the Department of Climate Change.