Collapsed MISs and Tax Consequences for Investors

The Tax Office has released four draft taxation determinations which set out the Commissioner’s preliminary views on the tax consequences for investors with interests in collapsed managed investment schemes (MISs).

Broadly, the tax consequences are:

• a failure to plant trees intended to be established under a forestry MIS does not affect the timing of deductions for expenditure on seasonally dependent agronomic activities (eg tending seedlings prior to planting) where the requirements of the general deduction provisions and the prepayment rules relating to expenditure have previously been satisfied;
• a failure to plant all trees intended to be established under a forestry MIS means that an amount cannot be deducted under the forestry MIS provisions;
• a deduction is not allowed under the forestry MIS provisions where a CGT event happens in relation to a participant’s interest in a forestry scheme within four years after the end of the income year in which the participant first pays an amount under the scheme; and
• a deduction will not remain allowable under the general deduction provisions where a CGT event happens in relation to a participant’s interest in a forestry scheme within four years after the end of the income year in which the taxpayer first incurred expenditure under the agreement.

NOTE: The Government has announced that the tax laws will be amended to ensure the four-year holding period rule for forestry MISs cannot be failed for reasons genuinely outside investors’ control.