Huge capital gains tax bills triggered by soaring share prices and the impending changes to Australia's superannuation regime are set to push inflows into tax-effective agribusiness schemes beyond last year's $1.2 billion total, despite recent legislative changes making them less attractive.
The sector is banking on a last-minute splash of money this week from savers who sold millions of dollars of assets in the past months to inject into their retirement savings accounts.
Agribusiness researcher Adviser Edge managing director Shane Kelly said the superannuation changes had created a bottleneck, as investors rushed to finalise their CGT position and calculate the amount of tax they needed to offset. "We're expecting a rush into forestry projects, to cover capital gains, to come in particularly late this year," Mr Kelly said.
In a year of regulatory uncertainty and drought, cashed-up sharemarket investors and super contributors appear to have saved the sector from reporting a slide in fund flows.
Brokers have estimated the super changes, introduced to allow workers to deposit up to $1 million into super before imposing strict limits on July 1, could boost the retirement pool by as much as $25 billion through voluntary contributions. But the sector isn't confident of a boom just yet.
"Until people walk through the door with their wallets open it's hard to say," one promoter, who declined to be named, said last week. "There have been headwinds all year."
Gunns, Timbercorp and Great Southern Plantations are the three heavyweights of the timber and horticulture industry, accounting for about half of sector sales, which lure investors with large tax refunds on their deposits and give supporters the ability to offset capital gains liabilities.
The sector historically attracts as much as 80 per cent of inflows in the two months leading up to June 30, and most will be open this Saturday to accept last-minute contributions.
Macquarie Private Portfolio Management head of Australian equities Damian Graham said there were plenty of investors seeking deductions after a strong year in the sharemarkets, which has risen more than 30 per cent in the past 12 months.
But those taking advantage of the tax-effective sector can only expect between 50¢ to 70¢ of every dollar they deposit into the schemes to actually be invested.
According to industry participants, a 10 per cent commission is usually paid to financial advisers promoting the sector, while overheads and margins skimmed off by sales staff can cut an investor's deposit in half.
CPA Australia has warned investors to familiarise themselves with new tax rules for managed investment schemes as the tax treatment for forestry and non-forestry projects is set to differ.
Most non-forestry schemes, such as citrus orchards and olive groves, had a June 15 deadline for 2006-07 fiscal year investments, leaving investors just one more year to take advantage of the tax haven, under proposed laws.
Adviser Edge has estimated just over $500 million has flowed into this pocket of the industry. Some changes have also been made to forestry investments, which is seeking at least $700 million in flows before June 30, although investors can still access upfront deductions in coming years.
Paramount Wealth Management's Wayne Leggett said "research is the key; there's so much product out there".
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