Collapse of Timbercorp and Great Southern: basis for the ATO to deny tax deductions?
Taxpayers who invested in either a Timbercorp or Great Southern managed investment scheme are now well aware of the fact that:
– Timbercorp was originally placed into voluntary administration and is now in liquidation; and
– Great Southern was also placed into voluntary administration with several of its subsidiaries also having ‘receivers and managers’ appointed.
The main reason for the above consequences was that the entities had simply run out of funds and were no longer able to maintain the forestry and horticultural projects they had underway. This immediately creates massive uncertainty to investors’ future investment as there is no guarantee of whether:
– the crops will ever be harvested [meaning there will be no harvest proceeds]
– a new Entity will be found to take over the projects; or
– the assets of the entities [i.e. land, trees and machinery] will be sold [and for what price]
The ATO are in the process of preparing a draft ruling for consultation, however the follow general guidance is provided in the interim.
There is no reasonable ground to disallow investors to claim deductions properly purely because of the collapse itself. Investors continue to be protected by any product ruling under which they claim the deductions.
If a managed investment scheme [MIS] is wound up [or its implementation is substantially altered] the product ruling will cease to apply. Whilst investors may no longer be able to rely on the ruling, the prior deductions claimed may still be legitimate based on the ordinary provisions of the tax law.
The ATO have addressed two issues regarding potential denial or spreading of past deductions for MIS forestry scheme participants under the current legislation, being:
Establishment period issues – if deductions were claimed under Div 394 there is a clawback provision if the trees are not all established within 18 months of the end of the year in which an amount is first paid under the forest MIS.
Holding period issues – if deductions were claimed under Div 394 there is a further clawback provision if a CGT event happens in relation to your forestry interest within 4 years after the end of the year in which you first paid an amount under the forestry MIS. [An amendment can be within 2 years of the CGT event].
This article has been prepared for the purposes of general information and guidance only. It should not be used for specific advice or used for formulating decisions under any circumstances. If you would like specific advice about your own personal circumstances please contact our office.