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17 Forestry managed investment scheme deduction

Last updated 21 December 2020

A partnership may be able to claim a deduction at this item for payments made to a forestry managed investment scheme (FMIS) if it:

  • currently holds a forestry interest in an FMIS, or held a forestry interest in an FMIS during the income year
  • paid an amount to a forestry manager of an FMIS under a formal agreement
  • the forestry manager has advised the partnership that the FMIS satisfies the 70% direct forestry expenditure rule in Division 394 of the ITAA 1997
  • the partnership does not have day to day control over the operation of the scheme
  • there is more than one participant in the scheme or the forestry manager or an associate of the forestry manager manages, arranges or promotes similar schemes, and
  • the trees are established within 18 months of the end of the income year in which an amount is first paid under the FMIS by a participant in the scheme.

The deduction is claimed in the income year in which the payment is made. However, where the partnership's investment in the FMIS results in it carrying on a forestry business of primary production, its payments under the FMIS may be subject to the non-commercial loss provisions in Division 35 of the ITAA 1997.

The partnership is an initial participant in an FMIS if:

  • it obtained the forestry interest in the FMIS from the forestry manager of the scheme, and
  • the payment to obtain the forestry interest results in the establishment of trees.

The partnership is a subsequent participant if it obtains an interest in an FMIS through secondary market trading. This means it acquired its interest other than as an initial participant, usually by purchasing that interest from an initial participant in the scheme.

If the partnership is an initial participant, it can claim a deduction for initial and ongoing payments at this item. The partnership cannot claim a deduction if it has disposed of its forestry interest in an FMIS within four years after the end of the income year in which it first made a payment. However, the deduction will be allowed if the disposal occurs because of circumstances outside of the partnership's control, provided the partners could not have reasonably foreseen the disposal happening when they acquired the interest. Disposals that would generally be outside the partnership's control may include compulsory acquisition, insolvency of one or more of the partners or the scheme manager, or cancellation of the interest due to fire, flood or drought.

If the partnership is a subsequent participant, it cannot claim a deduction for the amount paid for acquiring the interest. The partnership can only claim a deduction for ongoing payments.

The forestry manager of an FMIS is the entity that manages, arranges or promotes the FMIS.

A forestry interest in an FMIS is a right to benefits produced by the scheme, whether the right is actual, prospective or contingent, and whether it is enforceable or not.

Initial participants can claim at this item initial and ongoing payments made under an FMIS, which were made as an initial participant of the FMIS.

Subsequent participants can claim at this item ongoing payments made under an FMIS, which were made as a subsequent participant of the FMIS.

The deduction is claimed in the income year in which the payment is made.

Relevant terms are explained at Forestry managed investment scheme income.

Excluded payments

The partnership cannot claim a deduction at this item for any of the following payments:

  • payments for borrowing money
  • interest and payments in the nature of interest
  • payments of stamp duty
  • payments of goods and services tax (GST)
  • payments that relate to transportation and handling of felled trees after the earliest of the following    
    • sale of the trees
    • arrival of the trees at the mill door
    • arrival of the trees at the port
    • arrival of the trees at the place of processing, other than where processing happens in-field
     
  • payments that relate to processing
  • payments that relate to stockpiling, other than in-field stockpiling
  • marketing and sale of forestry produce.

Whilst the payments are not FMIS payments, they may qualify as revenue or capital payments under another label.

Show at D the total amount of deductible payments made to an FMIS.

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