Private ruling: Transfer of ownership of interest in forestry managed investment scheme
Date of advice: 15 February 2017
Published: July 2017
Ruling period: Year ending 30 June 20BB | Year ending 30 June 20CC | Year ending 30 June 20DD | Year ending 30 June 20EE | Year ending 30 June 20FF | Year ending 30 June 20GG | Year ending 30 June 20HH | Year ending 30 June 20II
Date scheme commenced: 1 July 20AA

Ruling: Q1: Are you required to include in your assessable income the market value of the lots in the forestry managed investment scheme (FMIS) when you transfer ownership of the lots to the trust? | A1: Yes.

Relevant facts and circumstances: Several years ago you purchased lots in a FMIS (the forestry interest) from the manager of the scheme. You have claimed deductions for expenditure in relation to your investment. A return on your forestry interest is expected in 20HH You intend to transfer ownership of your forestry interest to your family trust.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 104-60 | Income Tax Assessment Act 1997 section 118-20 | Income Tax Assessment Act 1997 section 394-25

Reasons for decision: Summary: All legislative references below are to the Income Tax Assessment Act 1997 unless otherwise indicated. | Detailed Reasoning - Forestry managed investment schemes: Generally income is assessable and expenditure is deductible under sections 6-5 and 8-1 respectively. However, some amounts that may not be assessable or deductible under those general provisions may be made specifically assessable or deductible by particular legislative provisions. For example, the tax treatment of forestry managed investment schemes (FMIS) is specifically provided for by Division 394. A FMIS can have two different types of investors - initial participants (section 394-25) and subsequent participants (section 394-30). If you are an initial participant and a CGT event happens to your forestry interest such that you no longer hold it (for example, you dispose of or transfer your forestry interest) then section 394-25 requires you to include in your assessable income the market value of the forestry interest just before the event. The following example was provided in the Explanatory Memorandum that accompanied the introduction of Division 394 (The Explanatory Memorandum to the Tax Laws Amendment (2007 Measures No.3) Bill 2007 ): | Detailed Reasoning - Example 9.1: Helen subscribed to a forestry scheme managed by Australian Forests Limited (AFL) for $9,000 in June 2008. Investors in AFL interests are required to contribute an annual management and services fee of $1,000 in each July starting July 2009. In October 2012, Helen sells the interests for $11,000. Helen includes the amount of $11,000 in her assessable income on revenue account for the year ended 30 June 2013 in accordance with section 394-25. Helen will have also obtained under section 394-10 a deduction of $9,000 for the acquisition costs of the AFL interests in the year of income ended 30 June 2008 and of $1,000 for the annual management and services fee in each income year ended 30 June 2010 to 30 June 2013. | Detailed Reasoning - Capital gains tax: CGT event E2 happens if a taxpayer transfers a CGT asset to an existing trust (section 104-60). The time of CGT event E2 is when the asset is transferred. Section 118-20 prevents double taxation by reducing a capital gain by any amount that has also been included in a taxpayer's assessable income under another provision of the tax law, as a result of the CGT event. | Detailed Reasoning - Application to your circumstances: You intend to transfer your forestry interest to the family trust. Section 394-25 will apply to include the market value of the forestry interest just before the transfer, in your assessable income. The transfer of ownership will also be a CGT event. However, the anti-overlap provision section 118-20 will apply so that any resulting capital gain will be reduced by the amount included in assessable income under section 394-25.