Following the collapse of Timbercorp and Great Southern Plantations there have been some concerns by investors as to the status of their tax deductions. These concerns were driven by statements in the media possibly encouraged by statements from the Australian Taxation Office. There should not have been any concerns because the correct application of the tax laws should not have resulted in any change to the status of previously claimed deductions.
The Australian Taxation Office has issued three draft determinations which will assist investors in these schemes.
The first draft determination makes it clear that where an MIS continues to be carried out in accordance with the terms of the relevant product ruling, including under the management of an administrator, receiver or new responsible entity, the ruling will continue to apply. However, where any change results in there being a material difference in the implementation of the scheme, the participant will not be able to rely on the product ruling for the scheme
The second draft determination provides that where there is a disposal or termination of an interest in a non-forestry MIS arising as a result of circumstances outside the taxpayer’s control does not result in the denial of deductions previously allowed in respect of contributions to the scheme. In the ruling the Commissioner quite properly notes that there are no rules in the Tax Acts applicable to non-forestry schemes that subsequently deny deductions that have been claimed if the scheme is discontinued because, for example, it is wound up on the basis that the purpose of the scheme cannot be accomplished.
The third draft determination provides that a payment received by an investor in a non-forestry MIS upon the windingup of the scheme, that does not involve the disposal of an interest in the scheme to another person, does not necessarily constitute ordinary or statutory income but may do so. Ordinary rules of characterisation of the receipt apply. Prima facie, receipts from the conduct of a business are assessable income. The sale of the annual crop, for example, is a sale of the business owner’s trading stock and therefore the disposal is included in assessable income under the trading stock provisions. A payment that is the consideration received in respect of the disposal of the assets of a business may be an income or capital receipt depending on the circumstances.