Double disaster for Timbercorp investors

Investors in recent Timbercorp managed investment schemes would have to pay back all their tax deductions if they sell their crop, a taxation expert has warned.

GMK Centric director of taxation Chris Wookey said payment of the original investment would define the start of the four-year period where they are liable to repay tax deductions.

“If an investor paid their monies in 2005 to enter into a scheme, they will have to hold the crop until June 30 this year to avoid repaying any deductions,” he said.

“So investors from the 2006 (financial year) onwards need to be very careful.”

Wookey said the Australian Taxation Office has separate legislation from the product rulings covering moves to exit schemes and triggering repayments.

“As long as the investor is outside the four-year period, they have no concerns,” he said.

“Also, people who bought units on the secondary market would not be affected.”

However, it is understood very few units in either the Timbercorp or Great Southern schemes have appeared on any secondary markets.

Timbercorp administrator Korda Mentha has proposed investors in the tree schemes sell their trees to enable the land to be sold unencumbered.

Wookey said newer investors in the schemes would have to consider the repayment of deductions before making any decision.

Another taxation problem has arisen for investors in the final Timbercorp forestry scheme that could result in them losing their investment and being forced to repay the deductions.

Korda Mentha confirmed at the first creditor’s meeting that the trees in the 2008 scheme had not been planted.

As part of the product ruling, the trees have to be planted within 12 months for the tax deduction to be active.

The trees have not been planted, Korda Mentha said, despite the funds being released by the custodian.

Matthews Steer Chartered Accountants chairman Geoff Steer said all conditions of the product ruling had to apply to get the deductions.

“If the crop hasn’t been planted, technically the conditions of the ruling haven’t been met, so the deduction would be disallowed,” he said.

“The investor claims the tax in the year they make their payment, so if the 2008 trees haven’t been planted, the deduction might have to be repaid.”

The amount of deduction claimed would depend on the investor’s marginal tax rate, Steer said, but it could be up to almost half the investment.

However, tax deductions on loans taken out on an investment would probably be still allowable, he said.

“If the business the investor has entered into is still trading, they can claim a deduction on the interest they have paid on the loan,” he said.