Agribusiness investments are often known as ‘tax effective’ investments because they provide investors with a tax deduction in the year the investment is made (subject to a valid ATO Product Ruling being in place). The ATO considers the investors to be primary producers, carrying on an agricultural, forestry or horticultural business to produce income which will then be assessable.
For an investor in the top marginal income tax rate (46.5%), an investment of $11,000 (incl GST) will generate a tax refund of $4,650 plus a potential credit of $1,000 if the grower is registered for GST.
Upfront tax deductions
Because of the “upfront” tax deductibility of tax effective investments, the higher the taxpayer’s marginal tax rate, the lower the after tax entry cost. This is why agribusiness investments are often most attractive to higher income earners in the highest marginal tax rate bracket. Tax effective agribusiness investments allow these investors to reduce their tax liability. The tax treatment of a tax effective investment enhances the overall benefits of the underlying investment.
ATO Product Ruling
An agribusiness managed investment scheme should be supported by an ATO Product Rulings which specifies that the tax deduction is available to the investor who is taking part in an ‘agricultural business’. A tax ruling provides investors with the assurance of a tax outcome, so long as the Responsible Entity abides by the project arrangement for which it was granted the product ruling. It is important to note that an ATO Product Ruling is not an endorsement or recommendation for the merits of the project but rather an assurance of its tax position. ATO rulings for agribusiness MIS are also complemented with checks by the Australia Securities & Investments Commission, and many projects have independent research. Investors are encouraged to seek and read research reports conducted for the project to gain an independent review of any agribusiness MIS they are considering investing in.
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