Taxation incentives to establish forests

​​Tax protection package for investors in forestry managed investment schemes

On 13 May 2010, the Australian Government amended the 4-year holding period tax law for forestry managed investment schemes (MISs) so that an investor's deduction is allowed to stand where the 4-year holding rule is failed due to events beyond the control of the investor. These events include the insolvency of the MIS manager, the death of the investor or where an MIS interest is cancelled, for example, because of trees being destroyed by fire, flood or drought.

Other arrangements for forestry managed investment schemes

Revised taxation arrangements for investments in forestry MISs 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% of investor funds to be directly allocated to forestry costs, such as land rental, plantation establishment, tending and harvesting. Aimed at minimising fees and commissions and encouraging higher returns to the MIS investors, this requirement is critical because it:

  • sends a signal to the community that the government is serious about viable plantation development
  • addresses perceptions that these schemes have been structured for the purposes of tax minimisation
  • discourages promoters from charging excessive fees and commissions.

The forest industries were extensively consulted in the development of these arrangements, which 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
  • allowing secondary trades in investments after a holding period of 4 years.

Secondary market trading is important to assist with the liquidity of investments and contribute to the development of pricing information in the market place. It is anticipated that secondary market trading may encourage the development of longer rotation plantations for structural grade timber.

See Tax Laws Amendment (2007 Measures No. 3) Act 2007 (No. 79, 2007)—Schedule 8

Secondary markets for forestry managed investment schemes

Consistent with the Australian Government's announcement on revised taxation arrangements for forestry MIS, the Treasury and the department completed a review of options for developing secondary markets in forestry MIS and reported to government on 22 March 2007.

As a result of this review, the government decided to allow investors in forestry MISs to trade their interests once they have been held by the initial investor for a period of 4 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.

See Tax Laws Amendment (2007 Measures No. 3) Act 2007 (No. 79, 2007)—Schedule 8

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. This deduction aims to encourage the establishment of forests for the dedicated purpose of absorbing carbon dioxide from the atmosphere.

See Australian Taxation Office for details.

Freedom of Information request

The department received a request (Ref: FOI 2011/12-54) under the Freedom of Information Act 1982 (FOI Act) seeking correspondence held by the department in relation to MISs.

Documents released under the FOI Act are available in the department's FOI disclosure log.