Agribusiness managed investment schemes seem to stagger from yearly crises to yearly crises.
The latest problem is the result of a Federal Court decision regarding product rulings.
Barkworth Olives Management took theAustralian Taxation Office(ATO) to court over a draft product ruling. The ATO refused to issue a final product ruling on Barkworth’s managed investment scheme for this financial year and the manager sought to have the ruling assessed in the court.
The ATO argued it should be heard in the Administrative Appeals Tribunal, which can take between four to eight months to reach a decision.
The ATO won. This means any promoters wanting their product ruling reviewed now face a long wait, which inevitability means they miss selling their product before June 30.
Australian Agribusiness Groupresearch manager Tim Lee says the ATO seems to have declared war on managed investment schemes by slowing down the issue of product rulings.
“A product ruling is now fundamentally accepted as being an absolute requirement before investment,” he says.
“It’s the ATO’s ‘mother of all weapons’.
“The move has been spectacularly successful, and threatens to rout capital raising efforts in 2003, building upon previous skirmishes with the ATO, most notably in 2001.”
The ATO argues it is issuing product rulings at the same rate as previous years, however, according to the tax office’s web site, the numbers are well down.
In 2002, the ATO issued 45 product rulings for agribusiness managed investment schemes by April 30. This year it has issued 15.
“The lack of product rulings has delayed a number of products from getting to the marketplace,” Lee says.
“We have identified between 10 and 15 schemes that still haven’t got product rulings and this is shortening their selling season.”
To achieve the offered tax benefits, the product has to be planted before June 30. Timber schemes, however, are excluded from this ruling.
Lee says smaller promoters will be hit hardest, because they will not have the ability to buy and prepare the land before issuing a prospectus.
Timbercorp marketing and technical manager Bonnie Guilford says the company’s olive and almond schemes are ready for planting.
“Only a limited number of larger managers would be able to be prepared before making an offering,” she says.
“The lack of product rulings will thin out the weaker product offerings, leaving only the larger project managers.”
Northwood Financial Services managing director Rod North says a product ruling is still the most important thing planners look for.
“It is the schemes that have product rulings that get the business,” he says.
“However, most dealer groups make their decisions as to which schemes to put on their approved lists in February and March.”
Lee says the sector has become too important to abandon, raising in excess of $300 million a year for agriculture.
“We need promoters to think earlier about their schemes and apply for product rulings in November or December,” he says.
“It does need some forward planning on their behalf to get the scheme prepared for approvals.
“We have got to move away from the June 30 stampede when promoters achieve most of their sales.”
Guilford agrees, and hopes such a move would be seen by planners as an industry sector maturing.
“We have got to educate the planners that agribusiness schemes are an all-year-around industry sector,” she says.
“This means the promoters have to get organised as early as possible in the financial year.”
North says a number of agribusiness managers are using other means of capital raisings.
“Ferngrove Vineyards raised $1.5 million in a limited-offer scheme, rather than through a prospectus, which would have required a product ruling,” he says.
“A number of agribusiness groups are also looking at using pooled development funds for future capital raisings.”
North believes there will be a decline in tax-effective schemes as the agribusiness sector moves to more traditional fund-raising methods.
“This is the evolution of agribusiness as it comes to be recognised as an asset class in its own right,” he says.
Lee says the latest ATO moves will not mean the end of tax-effective agribusiness schemes.
“To date the industry has been tax-driven, but the investment side of the offering is being looked at more,” he says.
“However, tax-effective schemes do have a place for investors who pay a lot of tax.”
