Tax Treatment of Plantations and Farm Forestry

The taxation treatment that an investment will receive directly influences its attractiveness to potential investors. 

The Government's goal is to promote plantation development by ensuring that tax law treatment of plantations is reasonable and favourable to investment. The Government has introduced legislation to ensure that only net proceeds of plantation sales are taxable. This follows an Australian Tax Office (ATO) ruling that found an anomaly in the tax treatment of sales of immature plantations. Resolution of this anomaly was one of the major outcomes sought by industry. 

While the Government believes that plantation investors are generally treated equitably, the extent to which tax treatment benefits individual investors is dependent on investors' business structures, opportunities to stagger income from harvesting and use of income averaging provisions and Income Equalisation Deposits. 

· DPIE in consultation with ATO will undertake an extensive publicity campaign among plantation growers, rural landholders, industry organisations, State forests and land conservation agencies, rural accountants and other groups about the taxation arrangements applying to plantations. 

· To ensure effective and ongoing consultations with industry on tax issues affecting plantation development, the Government will retain the Interdepartmental Committee examining forest industry tax issues, which will liaise with industry on major issues through the Wood and Paper Industry Council. 

A number of issues remain outstanding, which the Government intends to address in the following ways. 

The capital gains tax treatment of plantation forestry investments

• The ATO will clarify and review aspects of the current CGT treatment of plantation forestry investment.
  
• The ATO will issue a public determination no later than March 1996 to confirm that CGT will apply only upon the grant of a profit à prendre and not when the timber is subsequently felled.
  
• The Government recognises that the capital gains tax treatment of royalty arrangements could result in double taxation. The ATO will identify the best means of resolving this anomaly, with an announcement no later than July 1996.
  
• The ATO will review, by endNovember 1996, other tax consequences of the grant of an easement, profit à prendre and right to a royalty stream

Benefits of current income averaging arrangements to plantation forestry investors

· The Government will complete a review of income averaging arrangements by March 1996, for consideration by Commonwealth and State governments at that time. 

The taxation treatment of sale and purchase of immature plantations

  The Government will complete a review of taxation arrangements by March 1996, including examining write-off provisions relating to the sale and purchase of immature plantations, with a view to removing the impediments to the creation of an expanding secondary market.

The appropriateness of the 13 month period for deductibility of prepayments to forestry schemes

 The ATO is conducting a review of investment schemes (including afforestation), which will examine issues relating to deduction of prepaid establishment expenses. This review will be completed by no later than May 1996.