Announcement 19 December 2008

The Federal Court of Australia has ruled in favour of Australian agribusiness fund sector's appeal against the ATO in regards to the ATO's treatment of non-forestry MIS. In ruling the Test Case, the Court considered that investors in an agribusiness MIS showed many characteristics consistent with carrying on a business. This has resolved the uncertainty regarding the tax treatment of non-forestry agribusiness investments; contributions to non-forestry MIS can be treated as tax deductible.

Background

In 2007 the Australian Taxation Office (ATO) reconsidered its interpretation of tax laws in relation to the tax treatment of agribusiness managed investment schemes and announced that MIS investments made after 1 July 2008 will no longer be tax deductible. The ATO would no longer considerd a non-forestry MIS investor to be carrying on a business but rather they are passive investors and therefore subject to different taxation treatment. This did not affect investments entered before 1 July 2008.

The new interpretation of this decision did not affect forestry MIS investors as the Australia Government had introduced new legislation on the tax deductibility of investments as long as the project satisfied a new set of requirements:

• That the scheme was for the establishment and tending of new plantations for felling
• The plantation is established within 18 months of the year in which the initial investment amount was first paid
• The grower does not have day to day control of the scheme
• There is more than one participant in the scheme
• The scheme satisfies the 70% Direct Forestry Expenditure Rule

However this new interpretation would have meant that non-forestry MIS investors would no longer have been able to claim a tax deduction on the basis that they were carrying on a business. To provide investors with more certainty, Agricultural Investment Managers Australia (AIMA) and the Commissioner of Taxation held a test case in mid-late 2008 and on 19 December 2008 the Federal Court of Australia unanimously ruled in favour of the test case – that contributions to non-forestry MIS can be treated as tax deductible.

This decision provided clarity and greater certainty for investors in agribusiness MIS. The ATO announced in a press release that they will work with the industry to finalise 2009 product rulings as soon as possible and that they did not expect to appeal the case.

	ATO Press Release: MIS Test Case ruling
	MIS Test Case Q & A by Macquarie Agribusiness