Promoters of non-forestry managed investment schemes have reacted angrily to last week’s announcement by Assistant Treasurer Peter Dutton of changes to tax rulings on MIS proposals.
Promoters of non-forestry managed investment schemes have reacted angrily to last week’s announcement by Assistant Treasurer Peter Dutton of changes to tax rulings on MIS proposals.
While Prime Minister John Howard faced a barrage of criticism, both from his own party and chief executives of Australia’s largest agribusiness managed investment schemes this week, industry figures say non-forestry MIS promoters should start preparing for the worst.
Mr Dutton’s announcement has seemingly signalled the end for non-forestry MIS projects, with the Australian Tax Office not to issue any product rulings for MIS entered into after July 1 2007, effectively removing up-front tax deductions for non-forestry projects.
Western Australian-based MIS promoters, including Great Southern Plantations, Arafura Pearls and Kailis Organic Olive Groves, have come out in force, strongly opposing the changes they say will cut millions of dollars worth of sales, cost agricultural jobs and destroy some of Australia’s emerging agricultural industries.
Mr Howard has also come under fire from his own party, which this week forced the issue back to cabinet following a coalition party room meeting.
Senior ministers met in Canberra on Monday to discuss the proposed changes, but were unable to reach a consensus on the issue.
Industry players are now calling on the government to ensure a transitional period of three years to allow businesses to restructure in preparation for the potential loss of income.
But MIS specialist, PPB executive director Simon Read, said transitional provisions wouldn’t work as intended, as investors may be unlikely to invest in long-term projects while the whole sector was under a cloud.
“Generally, anybody selling non-forestry MIS under the current legislation will not have a product next year, and I think their product this year has been tarnished to an extent,” Mr Read told WA Business News.
“There’s going to be a real issue about people’s confidence in investing in a long-term project.”
Mr Read said there could also be corporations law implications for promoters and financial advisers selling projects whose future, and that of the promoter, was uncertain.
“Should [a promoter] be going to raise money when you know you might be out of business next year because you’ve got no major cash flow?” he said.
While the government’s decision was prompted by its plan for an expansion of Australia’s plantation forestry industry, it also has the added effect of pegging back some agricultural industries it believes have been adversely affected by the MIS system.
Wine grape projects, for example, have come under fire from some groups for contributing to the wine glut by encouraging investment in vines without adequate analysis of a viable market.
Mr Read believes that, while MIS re-invigorated investment in Australia’s rural industries, they are now over-used and being exploited by some promoters whose sole purpose was to make money for selling a tax deduction, with no consideration for the market viability of projects.
“If there is money to be made in growing olives, for example, people will go into it. There’s a sensible market,” he said.
“If you’ve got a good investment, and if you’re going to grow olives and make some money, then sell that story.”
Western Australian Farmers Federation farm business executive officer Ross Hardwick said although the federation had previously expressed concern over MIS, both for competing with farmers for farming land and causing over-supply, farmers and rural communities have learned to grow with the change.
He said the development of broadacre grain MIS products, or so-called share-farming projects involving partnerships between investors and farmers, created positive outcomes by allowing the sharing of the risk.
He also rebuts the idea that MIS are solely to blame for over-supply in some product markets.
“The current so-called glut was not only a result of MIS investment, but also direct and private investors; a lot of individuals put a lot of investment in as well,” he said.
Watershed Premium Wine and Oak Valley Truffle project director, Geoff Barrett, said he supported a review of the MIS system, but that the government’s move showed a lack of consideration.
Encouraging investment in rural industries was a challenge in any case, with the removal of tax incentives adding further difficulty, he said. “You will not attract investment dollars to rural Australia unless there is a tax incentive attachment,” Mr Barrett said.
With his winery project 75 per cent complete, the changes, if passed, will impede Mr Barrett’s ability to complete the last of the winery’s four stages.
Kailis Organic Olive Groves managing director Mark Kailis is in a similar position. The new ruling will hit his olive project halfway through its proposed 3,000 hectares of groves. The project has received almost $50 million in investment to date.
Mr Kailis said he would almost definitely not be going ahead with planting the remaining 1,500ha, leading to the loss of millions of dollars worth of investment and job cuts in rural communities.
“We’re hoping the government is going to see some sense and allow industry to consult, and have a scaling back period,” Mr Kailis said. “But to turn around and wipe out an industry overnight, it’s tragic and appalling.”
Mr Kailis said the MIS system provided Australian agriculture with a long-term strategic advantage when competing with highly subsidised European and American growers.
