Subsequent participant
You are a subsequent participant if you are not an initial participant. In most cases, this means that you bought your forestry interest from an initial participant.
You are an initial participant if:
- you obtained your forestry interest from the forestry manager of the scheme
- your payment to obtain the forestry interest is used to establish trees.
How CGT affects FMIS interests of subsequent participants
You can hold your forestry interest in one of 2 ways:
- on revenue account (for example, if you are in the business of trading forestry interests)
- on capital account.
If you hold your forestry interest on revenue account, there will be no CGT implications for the purchase and sale of your interest.
If you hold your forestry interest on capital account, then the CGT treatment of your forestry interest is discussed below.
Subsequent participant in an FMIS and forestry interest held on capital account
This section covers:
- Treatment of costs for acquiring a forestry interest in an FMIS
- Ongoing costs of ownership
- Treatment of thinning receipts
- Treatment of sale and harvest proceeds
Treatment of costs for acquiring a forestry interest in an FMIS
If you are a subsequent participant in an FMIS and hold your forestry interest on capital account, you are not able to claim a deduction for the costs of acquiring the forestry interest. Instead, you include these costs in the cost base or reduced cost base of your forestry interest for CGT purposes when the interest is subsequently disposed of prior to harvest or when the harvest proceeds are received.
Example 48: acquiring a forestry interest in a forestry managed investment scheme
Julian acquires a forestry interest in Australian Forests Limited (AFL), an FMIS, from Caroline in August 2023 for $14,000 (at market value). As Julian did not purchase the interest from the forestry manager of the scheme, he is a subsequent participant and also holds the interest on capital account as he does not trade in securities.
Julian is not entitled to a deduction for the $14,000 paid to Caroline for the acquisition of the interest. Instead, this amount will form part of the cost base or reduced cost base of the interest when Julian later sells the interest or receives harvest proceeds.
End of exampleOngoing costs of ownership
You can claim a deduction for the ongoing costs of holding your forestry interest if the amounts would have been deductible were they paid by an initial participant. That is, you don't include these costs in your cost base or reduced cost base.
Treatment of thinning receipts
Amounts you receive for thinning are excluded from the CGT treatment of your forestry interest. These amounts are included in your assessable income. Include this amount at question 23 Forestry managed investment scheme income – label A in your supplementary tax return.
Example 49: treatment of ongoing fees and thinning receipts
Julian pays $1,000 to AFL in annual management and services fees in each year of income after acquiring the interest from Caroline. These amounts are not included in the cost base or reduced cost base of the forestry interest and Julian can claim a deduction for these amounts. This is because Julian would have been able to deduct these amounts if he was an initial participant.
Julian receives $1,500 for thinning in December 2023 from AFL. This amount is not subject to CGT and is instead included in his assessable income for the income year ended 30 June 2024.
End of exampleTreatment of sale and harvest proceeds
Amounts you receive from a CGT event that happens to your forestry interest, for example the sale of your forestry interest or as harvest proceeds, are capital proceeds for CGT purposes; see What are capital proceeds?
Sale and harvest receipts: forestry interest no longer held
If a CGT event happens when you cease to hold your forestry interest (because you sell your interest or receive the harvest proceeds), you will also need to include at question 23 Forestry managed investment scheme income – label A in your supplementary tax return the lesser of the following 2 amounts:
- the market value of your forestry interest (at the time of the CGT event)
- the amount (if any) by which the total forestry scheme deductions (ongoing costs of ownership) exceeds the incidental forestry scheme receipts (for example, thinning).
To work out any capital gain or capital loss, the cost base or reduced cost base of your forestry interest increases by this amount.
Example 50: sale of a forestry interest in an FMIS
Julian is a subsequent participant who sold his forestry interest on 30 May 2024 at the market value of $20,000. He purchased the forestry interest for $14,000 on 1 August 2023. A CGT event happens when he sells the forestry interest. The original cost base of his forestry interest is $14,000.
While holding his forestry interest, he has claimed $4,000 in deductions (total forestry scheme deductions). This amount relates to lease fees, annual management fees, and the cost of felling that he has paid to the forestry manager. Julian has also received $1,500 as thinning proceeds (incidental forestry scheme receipts) during the same period. This amount was shown at question 23 Forestry managed investment scheme income – label A in his supplementary tax return for that income year.
In 2023–24 Julian will also need to include $2,500 ($4,000 − $1,500) as income at question 23 – label A in his supplementary tax return, as this amount is less than the market value of the interest at the time of the sale ($20,000).
Julian’s cost base increased from $14,000 to $16,500 ($14,000 + $2,500).
Julian calculated the capital gain as follows:
- capital proceeds of $20,000
- subtract cost base of $16,500
- capital gain is $3,500.
Julian may apply capital losses (if any) to the capital gain in determining the net capital gain to be included in his assessable income at question 18 Capital gains in his supplementary tax return. See the Capital gain or capital loss worksheet – Julian (PDF 90KB)This link will download a file.
End of exampleIf you still hold your forestry interest after the CGT event, for example you sold part of your interest or you received partial harvest proceeds over 2 or more income years, you will need to apportion your income as follows:
Step 1
Work out the following 2 amounts:
- the market value of the forestry interest (at the time of the CGT event)
- the amount (if any) by which the total forestry scheme deductions exceeds the incidental forestry scheme receipts.
Step 2
Use the lesser of the 2 amounts above in the following formula:
- amount worked out from step 1 multiplied by
- the decrease (if any) in the market value of the forestry interest (as a result of the CGT event divided by the market value of the forestry interest just before the CGT event.
Step 3
Include the resulting amount at question 23 Forestry managed investment scheme income – label A in your supplementary tax return.
Step 4
For CGT purposes, to calculate the new cost base or reduced cost base of your forestry interest:
- apportion the original cost base and reduced cost base of your forestry interest by the change in market value of your forestry interest, and then
- add the amount from step 3.
This apportioned cost base or reduced cost base should then be used to calculate your capital gain or capital loss.
Example 51: harvest proceeds over 2 income years
John is a subsequent participant who receives harvest proceeds over 2 income years. He received his first harvest payment of $5,000 in 2022–23.
The market value of John’s forestry interest was $20,000 just before he received his first harvest payment (which is a CGT event). After John received this first harvest payment, the market value of his forestry interest was reduced to $15,000. His original cost base was $14,000.
In the time that he has held his interest, he has claimed $4,000 in deductions (his total forestry scheme deductions). This relates to lease fees, annual management fees and the cost of felling that he has paid to the forestry manager. John also received $1,500 from thinning proceeds (his incidental forestry scheme receipts) in the same period.
Step 1
- The market value of the forestry interest (at the time of the CGT event) = $20,000.
- The amount by which the total forestry scheme deductions exceed the incidental forestry scheme receipts: $4,000 − $1,500 = $2,500.
The amount to use in step 2 of the calculation is $2,500.
Step 2
$2,500 × $5,000 ÷ $20,000 = $625
Step 3
John includes $625 at question 23 Forestry managed investment scheme income – label A in his supplementary tax return.
Step 4
The market value of John’s forestry interest has been reduced by 25%
(5,000 ÷ 20,000 × 100).
John’s adjusted cost base is:
(25% × $14,000) + $625 = $4,125.
Accordingly, John works out his capital gain to be $5,000 − $4,125 = $875. He includes $875 in calculation of his net capital gain or loss at question 18 Capital gains in his tax return.
In 2023–24, John received his final harvest payment (which is a CGT event) of $15,000. He has not paid other fees in 2023–24.
John includes the following amounts in his 2023–24 tax return:
- the remainder of $1,875 (that is, $2,500 – $625) from step 2 at question 23 Forestry managed investment scheme income – label A
- his capital gain of $2,625 (see below) in the calculation of his net capital gain or loss at question 18
- Adjusted cost base:
(75% × 14,000) + $1,875 = $12,375 - capital gain:
capital proceeds of $15,000 - subtract adjusted cost base of $12,375
- Net capital gain is $2,625.
- Adjusted cost base:
Continue to: CGT and the TOFA rules
Return to: Trust distributions and your CGT position