Green light for trading in forestry managed investment schemes

Australian forestry managed investment scheme (MIS) providers have welcomed changes in this year’s Federal Budget that will allow investors to trade their interests.

The changes will allow investors in forestry managed investment schemes (forestry MIS) to trade their interests once they have been held by the initial investor for more than four years. The changes follow last year’s review by Treasury and the Department of Agriculture, Fisheries and Forestry into impediments to secondary markets for forestry MIS interests.

According to Willmott Forests chief executive officer Marcus Derham, the changes mark an important initiative for the industry and is a further endorsement by the Federal Government of the value that plantation forestry brings to the economy and rural communities.

“We have a clear and supportive tax regime for plantation forestry. Now by creating a new framework where liquidity will be a feature, we can look forward to continuing investment confidence in Australia’s plantation forestry sector,” Derham said.

From July 1, 2007, initial investors in a forestry MIS will be allowed to trade their interest once they have been held for a period of at least four years.

The four-year restriction will apply only to the initial investors in a scheme. The measure will apply to interests in a pre-existing scheme, meaning taxpayers who invested in a forestry MIS prior to July 1, 2003, will be able to trade their interests from July 1, 2007.

The Government believes trading of forestry MIS interests will introduce pricing information into the market and increase liquidity of the interests.

It will also extend the amended period for forestry MIS investors to allow the Australian Taxation Office (ATO) to enforce the holding period rules, introduce a market value pricing rule at the time of first sale from an initial to secondary investor to reduce tax arbitrage, treat secondary investors (other than those holding interests as trading stock) on capital account for acquisition and disposal of their interests. For these purposes, harvest proceeds will be treated as a disposal, and allow secondary investors a deduction for ongoing costs to limit the incentive to front load fees, and introduce a matching provision that seeks to recoup on revenue account these deductions from the sale or harvest proceeds.

The Government also intends to impose administrative requirements on promoters, which will require them to: notify the ATO when they first receive income from a forestry MIS to ensure the ATO is aware of all industry participants; document the basis on which the scheme satisfies the 70 per cent direct forestry expenditure rule, which requires at least 70 per cent of the investors’ contributions to be spent on expenditure directly related to developing forestry; and notify the ATO should the trees not be established within 18 months.