Tax Treatment of participation in Managed Investment Scheme
- Arnold Shields
- Nov 20, 2009
- 2 min read
Updated: Jun 23, 2025
When high-profile Australian managed investment schemes (MIS) like Timbercorp Ltd and Great Southern Plantations collapsed, thousands of investors were left questioning the tax treatment of their now-worthless investments.
Fortunately, Australian tax legislation provides guidance, and in some cases, relief, for investors involved in such schemes.
Are MIS Participants Running a Business?
Yes, in many cases, the ATO considers investors in MIS to be carrying on a business, especially where a formal agreement with a project manager exists. This has important tax implications:
Deductibility of expenses: Investors may claim deductions under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA97).
Small Business Entity (SBE) Concessions: Eligible investors may access prepaid expense deductions and accelerated depreciation.
Non-Commercial Loss Rules: Under Division 35, individuals with ongoing losses may face restrictions unless income or asset tests are met.
Primary Production Provisions: Income averaging and other primary producer benefits may apply.
Entrepreneurs’ Tax Offset: Though now largely phased out, some legacy benefits may still impact older schemes.
GST Entitlements: Grower investors are seen as carrying on an enterprise and may claim input tax credits on related expenses.
Forestry Projects and Division 394: Special Tax Rules from 1 July 2007
From 1 July 2007, forestry MIS investments received specific treatment under Division 394 of ITAA97. This was a significant shift from the prior reliance on general tax provisions such as Sections 6-5 and 8-1.
Division 394 provides upfront deductions for investors who meet certain criteria. However, it only applies to payments made on or after 1 July 2007.
Typical Deductions in Forestry Managed Investment Schemes
Expense | Tax Treatment |
Establishment Fees | Deductible upfront in the year incurred or paid |
Borrowing Costs | Deductible over five years on a pro-rata basis |
Interest on Investment Loans | Deductible where borrowed funds are used to produce assessable income |
Rent, Service Fees | Deductible when payable or incurred depending on timing |
Harvest Supervision & Delivery Fees | Deductible in the year sale proceeds are received or fees become due |
Note: Where fees are tied to harvest proceeds, deductions may be deferred until income is received.
A Final Word
Many investors impacted by failed MIS schemes are still unsure how to treat their losses for tax purposes. While general tax rules offer some relief, newer legislation like Division 394 adds clarity, particularly for forestry projects.
Need Help With MIS Investment Losses?
If you invested in a collapsed scheme like Timbercorp or Great Southern and want to know where you stand, speak with our experienced team. We can help determine:
Whether you’re eligible to claim a deduction
How to apply non-commercial loss rules correctly
If GST credits are available
Get in touch today for expert tax guidance.
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.
