It has been possible for some time for taxpayers who are carrying on a business to claim a deduction for capital expenditure incurred in establishing trees where the primary or principal purpose of establishing the trees is for carbon sequestration and not for felling the trees or use of the trees for commercial horticulture subject to them meeting certain conditions. The trees do not necessarily have to be planted in the relevant income year but can be planted within 4 months of the end of the income year in which the deduction is claimed.

Importantly the trees can be established on land which is not owned by the taxpayer but may be leased or licensed to the taxpayer for the primary or principal purpose of establishing the trees for carbon sequestration.

Although the expenditure cannot be incurred under either a “managed investment scheme” or a “forestry managed investment scheme”, a “managed investment scheme” is not as defined in s 9 of the Corporations Act, 2001 but as defined in the Tax Acts. Under the Tax Acts, a “managed investment scheme” means an entity, with more than 20 members, that is:

  • a managed investment scheme for the purposes of the Corporations Act 2001, or
  • an entity with a similar status to a managed investment scheme under a foreign law relating to corporate regulation.

This means that it is possible to have a structure that is a managed investment scheme under the Corporations Act, 2001 but is not a managed investment scheme under the Tax Acts because the scheme only has 20 or fewer members. A scheme of only 20 members established in the traditional way for a forestry scheme could meet the requirement for each of the members to claim a deduction. Such a scheme could not be a forestry managed investment scheme because it is not established for the purpose of felling the trees.

The project may be able to then access the Australian Government’s Carbon Farming Initiative (CFI) and earn carbon credits from the storage of carbon in the trees which have been planted which can then be sold. Because it is not a forestry managed investment scheme the forestry plantation will not be an excluded offsets project under the CFI.