Collapse of Timbercorp and Great Southern: basis for the ATO to deny tax deductions?

What Happened to Timbercorp and Great Southern?

Taxpayers who invested in either the Timbercorp or Great Southern managed investment schemes are now well aware that:

• Timbercorp entered voluntary administration and is now in liquidation.

• Great Southern also entered administration, with several subsidiaries placed under receivership.

Both entities failed due to a lack of funds, making it impossible to continue operating their forestry and horticultural projects. For investors, this raises serious concerns about:

• Whether the crops will ever be harvested

• Whether a new entity will take over the projects

• Whether the underlying assets will be sold or managed effectively

Can You Still Claim Deductions?

The ATO has acknowledged these concerns and is preparing a draft ruling for public consultation. In the meantime, the following general principles apply:

• The collapse alone is not grounds to disallow deductions previously claimed under valid product rulings.

• Product rulings remain valid unless the scheme is officially wound up or substantially altered. If this occurs, the ruling no longer applies from that point forward.

However, this does not automatically invalidate past deductions. If your previous claims were legitimate under the general provisions of tax law or a valid product ruling, those deductions may still stand.

Key Clawback Provisions You Should Know

The ATO has flagged two specific clawback issues under Division 394 of the Income Tax Assessment Act 1997 (ITAA 1997), which affect forestry scheme investors:

1. Establishment Period Issue

If deductions were claimed under Div 394, they may be clawed back if the trees were not all established within 18 months after the end of the financial year in which the first investment payment was made.

2. Holding Period Issue

Deductions can also be reversed if a CGT event occurs within four years of the end of the income year in which you first paid an amount under the scheme.

In other words, if your forestry interest is sold, terminated, or otherwise disposed of within this period, the ATO may claw back the tax deduction.

Final Thoughts

The uncertainty surrounding failed MIS schemes like Timbercorp and Great Southern is understandably stressful. However, just because a scheme has collapsed doesn’t mean your tax deductions are automatically denied.

ATO product rulings and Division 394 provisions offer some level of protection. Still, the specific details of your investment, timing, and actions will determine whether you are fully compliant or at risk of clawbacks.

Need Personal Tax Advice?

This article is for general guidance only and does not constitute personal tax or legal advice. If you’ve invested in a failed managed investment scheme and are unsure of your position, please contact Dolman Bateman to review your circumstances in detail.

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Disclaimer:

The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.