defaulting agribusiness investors facing tax

This has been mentioned as a possibility in a previous post but I thought I'd post this article for a little more detail.

I'm not sure of the impact this will have on TIM. On one hand it will provide some encouragement to MIS investors to keep current with their loan payments to TIM (assuming they know this). On the other hand since TIM has rights to their timberplots if they default, it may not make that much difference, at least in the longer term.


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http://www.moneymanagement.com.au/Article/Defaulting-agribusiness-investors-facing-tax-slug/475720.aspx


Defaulting agribusiness investors facing tax slug
3 April 2009
Investors in timber agribusiness managed investment schemes who default on their loans may also find themselves facing substantial tax bills.
However, investors in horticultural schemes could avoid paying any additional tax if the loan is 'forgiven'.
GMK Centric director of taxation Chris Wookey said there were different tax treatments for defaulting loans in agribusiness schemes.
“If an investor defaulted on a loan for a forestry scheme within four years of buying the units, the part of the loan they hadn't paid would be treated as assessed income," he said.

"This means the ordinary rate of tax would apply to that investor's income."
For an investor who is in a lower tax band and receiving a large sum of taxable income from a defaulting loan, it could push them into a higher tax bracket.
This would negate any tax savings an investor might have claimed when making the initial investment, depending on how much of the loan was outstanding.
"The tax office does have the ability to claw back sums if the investor has not fulfilled their loan obligations within the four years," Wookey said.
"However, for horticultural schemes the ordinary procedure of debt being 'forgiven' by the tax office would apply," he said.
If the finance company writes off the outstanding amount of the loan, the tax office allows the investor to treat this as a negative expenditure for assessment.
Wookey said advisers needed to be particularly careful of the wording in the ATO Product Ruling on the scheme.
"Depending on the wording, the investor could still be at risk of having to pay some additional tax on the defaulting loan," he said.