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TAX LAWS AMENDMENT (2007 MEASURES NO. 3) ACT 2007 (NO. 79, 2007) - SCHEDULE 8

Forestry managed investment schemes

Part 1 -- Main amendments

Income Tax Assessment Act 1936

1  After section 82KZMG

Insert:

82KZMGA   Deductions for certain forestry expenditure

             (1)  A taxpayer cannot deduct expenditure in relation to which the requirements in section 82KZMG are met if:

                     (a)  the taxpayer holds the taxpayer's interest in the agreement mentioned in section 82KZMG as an initial participant in the agreement; and

                     (b)  a CGT event happens in relation to that interest within 4 years after the end of the year of income in which the taxpayer first incurred expenditure under the agreement.

             (2)  Despite section 170, the Commissioner may amend the taxpayer's assessment at any time within 2 years after the end of the year of income in which the CGT event happens, for the purpose of giving effect to this section.

82KZMGB   CGT event in relation to interest in 82KZMG agreement

             (1)  This section applies if:

                     (a)  a taxpayer holds an interest in an agreement mentioned in section 82KZMG as an initial participant in the agreement; and

                     (b)  at least one of these conditions is satisfied:

                              (i)  the taxpayer can deduct or has deducted an amount for a year of income in relation to the interest;

                             (ii)  the condition in subparagraph (i) would be satisfied if section 82KZMGA were disregarded; and

                     (c)  subsection 82KZMG(1) applies to the timing of the deduction (or would apply if section 82KZMGA were disregarded); and

                     (d)  a CGT event happens in relation to the interest, other than a CGT event that happens in respect of thinning.

             (2)  The taxpayer's assessable income for the year of income in which the CGT event happens includes:

                     (a)  if, as a result of the CGT event, the taxpayer no longer holds the interest--the market value of the interest (worked out as at the time of the event); or

                     (b)  otherwise--the decrease (if any) in the market value of the interest as a result of the CGT event.

             (3)  Any amount that the taxpayer actually receives because of the CGT event is not included in the taxpayer's assessable income (nor is it exempt income).

Income Tax Assessment Act 1997

2  After Division 392

Insert:

Division 394 -- Forestry managed investment schemes

Guide to Division 394

394‑1   What this Division is about

This Division sets out rules about deductions for contributions to forestry managed investment schemes. It also sets out the tax treatment of proceeds from the sale of interests in such schemes, and of proceeds from harvesting trees under such schemes.

Table of sections

394‑5        Object of this Division

394‑10      Deduction for amounts paid under forestry managed investment schemes

394‑15      Forestry managed investment schemes and related concepts

394‑20      Payments on behalf of participant in forestry managed investment scheme

394‑25      CGT event in relation to forestry interest in forestry managed investment scheme--initial participant

394‑30      CGT event in relation to forestry interest in forestry managed investment scheme--subsequent participant

394‑35      70% DFE rule

394‑40      Payments under forestry managed investment scheme

394‑45      Direct forestry expenditure

394‑5   Object of this Division

                   The object of this Division is to encourage the expansion of commercial plantation forestry in Australia through the establishment and tending of new plantations for felling. This is achieved by:

                     (a)  permitting investors to deduct amounts paid under a forestry scheme in the year of payment, if certain conditions are met (for example, that it is reasonable to expect that the manager of the scheme will spend at least 70% of investors' contributions, on a market value basis, on activities that establish, tend, fell and harvest trees); and

                     (b)  allowing secondary market trading of interests in such schemes, while minimising tax arbitrage and providing tax certainty for investors.

394‑10   Deduction for amounts paid under forestry managed investment schemes

             (1)  You can deduct an amount if:

                     (a)  you hold a * forestry interest in a * forestry managed investment scheme; and

                     (b)  you pay the amount under the scheme; and

                     (c)  the scheme satisfies the * 70% DFE rule (see section 394‑35) on 30 June in the income year in which a * participant in the scheme first pays an amount under the scheme; and

                     (d)  you do not have day to day control over the operation of the scheme (whether or not you have the right to be consulted or give directions); and

                     (e)  at least one of these conditions is satisfied:

                              (i)  there is more than one participant in the scheme;

                             (ii)  the * forestry manager of the scheme, or an * associate of the forestry manager, manages, arranges or promotes similar schemes; and

                      (f)  the condition in subsection (4) is satisfied.

             (2)  You deduct the amount for the income year in which you pay it.

             (3)  For the purposes of this Division, do not treat an amount as being paid under a * forestry managed investment scheme if:

                     (a)  you pay the amount in connection with a * CGT event in relation to a * forestry interest in the scheme; and

                     (b)  as a result of the CGT event:

                              (i)  another * participant in the scheme no longer holds the forestry interest; and

                             (ii)  you start to hold the forestry interest.

             (4)  For the purposes of paragraph (1)(f), the condition in this subsection is satisfied unless:

                     (a)  18 months have elapsed since the end of the income year in which an amount is first paid under the * forestry managed investment scheme by a * participant in the scheme; and

                     (b)  the trees intended to be established in accordance with the scheme have not all been established before the end of those 18 months.

             (5)  You cannot deduct an amount under subsection (1) if:

                     (a)  you hold the * forestry interest mentioned in paragraph (1)(a) as an * initial participant; and

                     (b)  a * CGT event happens in relation to the forestry interest within 4 years after the end of the income year in which you first pay an amount under the scheme.

If you have already deducted it, your assessment may be amended to disallow the deduction.

             (6)  Despite section 170 of the Income Tax Assessment Act 1936 , the Commissioner may amend your assessment at any time within 2 years after the * CGT event, for the purpose of giving effect to subsection (5).

             (7)  Sections 82KZMD and 82KZMF of the Income Tax Assessment Act 1936 do not affect the timing of a deduction under this section.

394‑15   Forestry managed investment schemes and related concepts

             (1)  A * scheme is a forestry managed investment scheme if the purpose of the scheme is for establishing and tending trees for felling in Australia.

             (2)  The entity that manages, arranges or promotes a * forestry managed investment scheme is the forestry manager of the scheme.

             (3)  A forestry interest in a * forestry managed investment scheme is a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not).

             (4)  An entity that holds a * forestry interest in a * forestry managed investment scheme (other than the * forestry manager of the scheme) is a participant in the scheme.

             (5)  A * participant in a * forestry managed investment scheme holds a * forestry interest in the scheme as an initial participant if:

                     (a)  the participant obtains the forestry interest from the * forestry manager of the scheme; and

                     (b)  the payment by the participant to obtain the forestry interest results in the establishment of trees.

394‑20   Payments on behalf of participant in forestry managed investment scheme

                   For the purposes of this Division, treat a payment to the * forestry manager of a * forestry managed investment on behalf of a * participant in the scheme as a payment by the participant to the forestry manager.

394‑25   CGT event in relation to forestry interest in forestry managed investment scheme--initial participant

             (1)  This section applies if:

                     (a)  you hold a * forestry interest in a * forestry managed investment scheme as an * initial participant in the scheme; and

                     (b)  at least one of these conditions is satisfied:

                              (i)  you can deduct or have deducted an amount for an income year under section 394‑10 in relation to the forestry interest;

                             (ii)  the condition in subparagraph (i) would be satisfied if subsection 394‑10(5) were disregarded; and

                     (c)  a * CGT event happens in relation to the forestry interest, other than a CGT event that happens in respect of thinning.

             (2)  Your assessable income for the income year in which the * CGT event happens includes:

                     (a)  if, as a result of the CGT event, you no longer hold the * forestry interest--the * market value of the forestry interest (worked out as at the time of the event); or

                     (b)  otherwise--the decrease (if any) in the market value of the forestry interest as a result of the CGT event.

             (3)  Any amount that you actually receive because of the * CGT event is not included in your assessable income (nor is it * exempt income).

394‑30   CGT event in relation to forestry interest in forestry managed investment scheme--subsequent participant

             (1)  This section applies if:

                     (a)  you hold a * forestry interest in a * forestry managed investment scheme otherwise than as an * initial participant in the scheme; and

                     (b)  at least one of these conditions is satisfied:

                              (i)  you can deduct or have deducted an amount for an income year under section 394‑10 in relation to the forestry interest;

                             (ii)  you could deduct an amount for an income year under section 394‑10 if you had paid the amount under the scheme in that year; and

                     (c)  a * CGT event happens in relation to the forestry interest, other than a CGT event that happens in respect of thinning.

             (2)  Your assessable income for the income year in which the * CGT event happens includes the lesser of the following:

                     (a)  the * market value of the forestry interest (worked out as at the time of the event);

                     (b)  the amount (if any) by which the * total forestry scheme deductions in relation to the forestry interest exceeds the * incidental forestry scheme receipts in relation to the forestry interest.

             (3)  The total forestry scheme deductions in relation to the * forestry interest is the total of each amount that you can deduct or have deducted under section 394‑10 for each income year in relation to the forestry interest.

             (4)  The incidental forestry scheme receipts in relation to the * forestry interest is the total of each amount that you have received under the scheme in each income year in relation to the forestry interest for a reason otherwise than because of the * CGT event.

             (5)  However, if you still hold the forestry interest despite the * CGT event, work out the amount included in your assessable income under subsection (2) using this formula (instead of using the amount worked out under subsection (2)):

             (6)  If this section has operated previously in relation to the * forestry interest, disregard an amount for the purposes of subsections (3) and (4) to the extent that it has already been reflected in your assessable income under that previous operation in relation to the forestry interest.

             (7)  These provisions do not apply to the * CGT event:

                     (a)  section 6‑5 (about * ordinary income);

                     (b)  any other provision that includes an amount in assessable income, other than the following:

                              (i)  a provision in Part 3‑1 or 3‑3;

                             (ii)  subsection (2) of this section;

                     (c)  section 8‑1 (about amounts you can deduct);

                     (d)  any other provision that allows you to deduct an amount from your assessable income;

                     (e)  section 118‑20.

             (8)  However, the provisions referred to in subsection (7) can apply to the * CGT event if a * capital gain or * capital loss from the event is disregarded because of section 118‑25.

             (9)  Just before the * CGT event, increase the * cost base and * reduced cost base of the * forestry interest by the amount included in your assessable income under subsection (2).

394‑35   70% DFE rule

             (1)  A * forestry managed investment scheme satisfies the 70% DFE rule on 30 June in an income year if it is reasonable to expect on that 30 June that the amount of DFE under the scheme (see subsection (2)) is no less than 70% of the amount of the payments under the scheme (see subsection (3)).

             (2)  The amount of DFE under the scheme is the amount of the net present value (on that 30 June) of all * direct forestry expenditure under the scheme that the * forestry manager of the scheme has paid or will pay under the scheme.

             (3)  The amount of payments under the scheme is the amount of the net present value (on that 30 June) of all amounts that all current and future * participants in the scheme have paid or will pay under the scheme.

             (4)  In working out the net present value of an amount paid before that 30 June:

                     (a)  unless paragraph (b) applies--treat the amount as having been paid on that 30 June; or

                     (b)  if the amount was paid in an income year ending before that 30 June--treat the amount as having been paid on the 30 June in that income year.

             (5)  In working out the net present value of an amount expected to be paid after that 30 June, treat the amount as having been paid on 1 January in the income year in which it is expected to be paid.

             (6)  Reduce an amount worked out under subsection (2) or (3) to the extent (if any) to which that amount can reasonably be expected to be recouped.

             (7)  In working out the net present value of an amount for the purposes of this section, use the yield on Australian Government Treasury Bonds with the maturity closest to 10 years (as published by the Reserve Bank of Australia).

             (8)  For the purposes of subsection (2), if:

                     (a)  the * forestry manager of the scheme has paid or will pay an amount under the scheme in a transaction; and

                     (b)  the forestry manager and at least one other party to the transaction did not or will not deal at * arm's length in relation to the transaction; and

                     (c)  the amount is or will be more or less than the * market value of what it is for;

treat the amount as that market value.

394‑40   Payments under forestry managed investment scheme

                   For the purposes of this Division, do not treat the following payments as payments under a * forestry managed investment scheme by a * participant in the scheme:

                     (a)  payments for * borrowing money;

                     (b)  payments of interest and payments in the nature of interest;

                     (c)  payments of stamp duty;

                     (d)  payments of * GST;

                     (e)  payments that relate to one or more of the matters mentioned in paragraphs 394‑45(4)(a), (b) or (c).

394‑45   Direct forestry expenditure

             (1)  Direct forestry expenditure under a * forestry managed investment scheme means:

                     (a)  an amount paid under the scheme that is attributable to establishing, tending, felling and harvesting trees; and

                     (b)  notional amounts reflecting the * market value of goods, services or the use of land, provided by the * forestry manager of the scheme, for establishing, tending, felling and harvesting trees.

Example 1:          Notional amounts reflecting the value of the use of land owned by the forestry manager that is provided for establishing, tending, felling and harvesting trees.

Example 2:          Notional amounts reflecting the value of tree felling services provided by the forestry manager.

             (2)  Treat * direct forestry expenditure covered by paragraph (1)(b) as paid annually for each income year of the * forestry manager of the scheme based on the * market value of the goods, services, or the use of the land. Treat the day on which it is paid as:

                     (a)  unless paragraph (b) or (c) applies--1 January in the income year; or

                     (b)  if the first time an amount is paid under the scheme is later than the first day of the income year--the last day of the income year; or

                     (c)  if the scheme comes to an end on a day before the end of the income year--that day.

Exclusions--general

             (3)  However, direct forestry expenditure under the scheme does not include amounts paid under the scheme to the extent that they relate to any of the following:

                     (a)  marketing of the scheme;

Example: Advertising, sales, sponsorship and entertainment.

                     (b)  insurance, contingency funds or provisions (other than provisions for employee entitlements);

                     (c)  financing;

                     (d)  lobbying;

                     (e)  general business overheads (but not overheads directly related to forestry);

                      (f)  subscriptions to industry bodies;

                     (g)  commissions for financial planners or financial advisers;

                     (h)  compliance with requirements related to the structure and operations of the * forestry manager of the scheme;

Example: Product design and preparation of product disclosure statements.

                      (i)  supervision and auditing of contracts, other than direct supervision of direct forestry activities (such as establishing trees for felling);

                      (j)  legal fees relating to any matter mentioned in this subsection.

Exclusions--expenditure after harvest etc.

             (4)  Also, direct forestry expenditure under the scheme does not include amounts paid under the scheme to the extent that they relate to any of the following:

                     (a)  transportation and handling of felled trees that happens after the earliest of the following:

                              (i)  sale of the trees;

                             (ii)  arrival of the trees at the mill door;

                            (iii)  arrival of the trees at the port;

                            (iv)  arrival of the trees at the place of processing (other than where processing happens in‑field);

                     (b)  processing;

                     (c)  stockpiling (other than in‑field stockpiling);

                     (d)  marketing and sale of forestry produce.

Taxation Administration Act 1953

3  At the end of Part 5‑25 in Schedule 1

Add:

Division 394 -- Reporting about forestry managed investment schemes

Guide to Division 394

394‑1   What this Division is about

A forestry manager of a forestry managed investment scheme must give the Commissioner information about initial contributions by participants in the scheme. The forestry manager must also inform the Commissioner if the trees are not established under the scheme within 18 months of the first investment in the scheme.

Table of sections

394‑5        Statements about initial contributions to scheme

394‑10      Statements about failure to establish trees within 18 months

394‑5   Statements about initial contributions to scheme

             (1)  The * forestry manager of a * forestry managed investment scheme must give the Commissioner a statement in relation to the scheme if:

                     (a)  the scheme satisfies the requirement in paragraph 394‑10(1)(c) of the Income Tax Assessment Act 1997 (the * 70% DFE rule); and

                     (b)  the forestry manager (or an * associate of the forestry manager) receives an amount under the scheme that is included in the forestry manager's (or the associate's) assessable income under section 15‑46 of that Act; and

                     (c)  that amount is the amount that is first paid under the scheme by a * participant in the scheme.

Note:          Section 286‑75 provides an administrative penalty for breach of this subsection.

             (2)  A statement under subsection (1) must be in the * approved form.

             (3)  The statement must be given to the Commissioner within 3 months after the end of the income year in which the * forestry manager (or the * associate) receives the amount.

Note:          Section 388‑55 allows the Commissioner to defer the time for giving an approved form.

             (4)  The * approved form may require the statement to contain the following information:

                     (a)  the name of the scheme;

                     (b)  information relating to the identity of the * forestry manager (or the * associate);

                     (c)  information relating to the amounts paid or payable under the scheme by * participants in the scheme.

             (5)  Subsection (4) does not limit the information that the * approved form may require the statement to contain.

394‑10   Statements about failure to establish trees within 18 months

             (1)  If:

                     (a)  a * forestry managed investment scheme satisfies the requirement in paragraph 394‑10(1)(c) of the Income Tax Assessment Act 1997 (the * 70% DFE rule); and

                     (b)  the condition in subsection 394‑10(4) of that Act is not satisfied in relation to the scheme;

the * forestry manager of the scheme must give the Commissioner a statement in relation to the reasons why that condition was not satisfied.

Note:          Section 286‑75 provides an administrative penalty for breach of this subsection.

             (2)  A statement under subsection (1) must be in the * approved form.

             (3)  The statement must be given to the Commissioner within 3 months after the end of the 18 months mentioned in subsection 394‑10(4) of the Income Tax Assessment Act 1997 .

Note:          Section 388‑55 allows the Commissioner to defer the time for giving an approved form.

             (4)  The * approved form may require the statement to contain the following information:

                     (a)  the name of the scheme;

                     (b)  information relating to the identity of the * forestry manager;

                     (c)  information relating to the circumstances that gave rise to the condition not being satisfied.

             (5)  Subsection (4) does not limit the information that the * approved form may require the statement to contain.


 

Part 2 -- Other amendments

Income Tax Assessment Act 1936

4  Subsection 82KH(1) (after paragraph (p) of the definition of relevant expenditure )

Insert:

                    (pa)  a loss or outgoing incurred by the taxpayer in respect of the establishment and tending of trees for felling on behalf of the taxpayer to the extent to which a deduction would, apart from section 82KL, be allowable to the taxpayer under section 394‑10 of the Income Tax Assessment Act 1997 in respect of the loss or outgoing;

5  After paragraph 82KH(1G)(p)

Insert:

                    (pa)  in a case where the relevant expenditure was incurred by the taxpayer in respect of the establishment and tending of trees for felling on behalf of the taxpayer--the establishment and tending of trees for felling on behalf of the taxpayer;

6  Paragraph 82KH(1L)(p)

After "paragraph (p)", insert "or paragraph (pa)".

7  After subsection 262A(2)

Insert:

     (2AAA)  Subsection (1) applies to a participant in a forestry managed investment scheme in relation to the scheme even if the participant is not carrying on a business in relation to the scheme.

     (2AAB)  Subsection (2AAC) applies to the forestry manager of a forestry managed investment scheme if:

                     (a)  the forestry manager (or an associate of the forestry manager) receives an amount under the scheme; and

                     (b)  the amount is included in the forestry manager's (or the associate's) assessable income under section 15‑46 of the Income Tax Assessment Act 1997 .

     (2AAC)  The records to be kept under subsection (1) by the forestry manager include records about the basis on which the scheme satisfies the requirement in paragraph 394‑10(1)(c) of the Income Tax Assessment Act 1997 (the 70% DFE rule).

8  Subsection 262A(6)

Insert:

"associate" has the same meaning as in the Income Tax Assessment Act 1997 .

9  Subsection 262A(6)

Insert:

"forestry managed investment scheme" has the same meaning as in the Income Tax Assessment Act 1997 .

10  Subsection 262A(6)

Insert:

"forestry manager" of a forestry managed investment scheme has the same meaning as in the Income Tax Assessment Act 1997 .

11  Subsection 262A(6)

Insert:

"participant" in a forestry managed investment scheme has the same meaning as in the Income Tax Assessment Act 1997 .

Income Tax Assessment Act 1997

12  Section 10‑5 (at the end of table item headed "forestry agreement")

Add:

CGT event in relation to forestry interest in agreement ....

82KZMGB

13  Section 10‑5 (after table item headed "forestry agreement")

Insert:

forestry managed investment schemes

 

forestry manager's receipts under scheme.........................

15‑46

CGT event in relation to forestry interest in scheme for initial participant ...............................................................

394‑25 (2)

CGT event in relation to forestry interest in scheme for subsequent participant ....................................................

394‑30 (2)

14  Section 12‑5 (after table item headed "foreign tax credits")

Insert:

forestry managed investment schemes

 

payments under scheme........................................................

394‑10 (1)

15  After section 15‑45

Insert:

15‑46   Amounts paid under forestry managed investment schemes

             (1)  Your assessable income includes an amount you receive under a * forestry managed investment scheme if:

                     (a)  you are the * forestry manager of the scheme, or an * associate of the forestry manager; and

                     (b)  the entity that paid the amount can deduct or has deducted the amount under section 394‑10 in relation to the scheme (disregarding subsection 394‑10(5)).

The amount is included for the income year for which the entity that paid the amount can or has claimed a deduction for it (disregarding subsection 394‑10(5)).

             (2)  No part of an amount included under subsection (1) is included in your assessable income for a later income year.

16  Section 112‑97 (after table item 22)

Insert:

22A

A CGT event happens in relation to forestry interest in a forestry managed investment scheme for a subsequent participant

The total cost base and reduced cost base

Subsection 394‑30(9)

17  Subsection 995‑1(1)

Insert:

70% DFE rule has the meaning given by section 394-35.

18  Subsection 995‑1(1)

Insert:

"direct forestry expenditure" has the meaning given by section 394-45.

19  Subsection 995‑1(1)

Insert:

"forestry managed investment scheme" has the meaning given by subsection 394-15(1).

20  Subsection 995‑1(1)

Insert:

"incidental forestry scheme receipts" has the meaning given by subsection 394-30(4).

21  Subsection 995‑1(1)

Insert:

"initial participant" in a * forestry managed investment scheme has the meaning given by subsection 394-15(5).

22  Subsection 995‑1(1)

Insert:

"forestry interest" in a * forestry managed investment scheme has the meaning given by subsection 394-15(3).

23  Subsection 995‑1(1)

Insert:

"forestry manager" of a * forestry managed investment scheme has the meaning given by subsection 394-15(2).

24  Subsection 995‑1(1) (definition of participant )

Repeal the definition, substitute:

participant:

                     (a)   participant , in relation to a * GST joint venture, has the meaning given by section 195‑1 of the * GST Act; and

                     (a)   participant in a * forestry managed investment scheme has the meaning given by subsection 394‑15(4).

25  Subsection 995‑1(1)

Insert:

"total forestry scheme deductions" has the meaning given by subsection 394-30(3).


 

Part 3 -- Application

26  Application

(1)        The amendments made by this Schedule apply to amounts paid by a participant under a forestry managed investment scheme on or after 1 July 2007.

(2)        Despite subitem (1), the amendments do not apply if any other amounts were paid by the participant or any other participant under the scheme before 1 July 2007.

(3)        Despite subitem (1), sections 394‑ 25 and 394‑30 of the Income Tax Assessment Act 1997 apply to CGT events that happen on or after 1 July 2007.

(4)        Despite subitem (1), sections 82KZMGA and 82KZMGB of the Income Tax Assessment Act 1936 apply to CGT events that happen on or after 1 July 2007.


 



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