I have been in contact with the federal department once controlled by Senator Erich Abetz.
Senator Abetz was the Minister for Forests in the last Liberal Government and a Champion of Managed Investment Schemes.
I made the contact with Senator Abetz’ former department to fill in the gaps over the changes to the law regarding MIS in Australia.
I was searching, through Freedom of Information, answers to the questions posed below.
The astonishing reply from the Department can be downloaded here:
It is impossible to believe that no records exist for the changes to a tax rort promoted by Abetz as the then Minister, which cost more than a billion dollars in foregone revenue; and involved tens of thousands of investors in a small but powerful group of Ponzi schemes.
• Was Abetz influenced as Minister of Forests by the $50,000 gifted to the Liberal Party by Gunns Ltd on 21 April 2006 - some three weeks after he was made the Minister?
• Was this Gunns money gifted with strings?
• Why was Abetz so protective of MIS legislation, legislation that favoured Gunns and other Ponzi scheme players such as Timbercorp (now bust), Great Southern (now bust), FEA (now bust) and Wilmot Forests (now bust), all of whom gained a benefit from these MIS scams at the expense of the taxpayer?
• The departure of their champion as Minister of Forests with the fall of the Liberal Government saw these Ponzi scheme companies collapse. Where now is the documentation over the changes to MIS which must have contributed to this collapse?
Some insights may be gained from the following:
• Interview with Eric Abetz 09/04/2007 on Four Corners, ABC, 09/04/2007. Reporter Chris Masters, questions to Abetz.
Q. Can you explain the commercial rationale for this very generous 100 per cent tax allowance? I mean if it’s such a good commercial venture why do you have to induce it at the expense of the taxpayer?
A. It is the 100 per cent deductibility is something that in general terms is available for anybody involved in an agricultural pursuit and that is the agricultural preparation of the land, the purchase of the seedling, the planting of the seedling et cetera. The difference with forestry is that let’s say unlike potatoes or wheat where you get an income with 12 months, you are looking at least a decade, sometimes even more and especially if we want to grow plantations out of saw log, you might be looking at a three decade turn around. And therefore for most people that would be a disincentive to invest. But by absolutely securing for them the 100 per cent deductibility that will provide assistance. Let’s keep in mind the tax office was of the view that these managed investments schemes were carrying on a business and they provided product rulings for a number of years. They then had some doubt about it and in those circumstances we as the government said let’s remove the doubt and keep the system basically going as it is now, but with a few extra safeguards, which requires that the companies spend at least 70 per cent on the actual agricultural pursuit of the investment.
Q. But given that you’ve withdrawn the MIS allowance tax allowance from other MIS products why was it kept for forestry?
A. There were a lot of arguments in favour of forestry and if I may just correct you, we didn’t withdraw anything, the Australian Taxation Office indicated that they were unlikely to provide product rulings, and with the other sector I think that’s going to be tested in court. But in relation to the forestry sector the arguments were very strong. From an economic ground we needed a replacement for the imports. We were getting out of old growth er resource and therefore we needed our own home grown resource. And also from an environmental point of view let’s keep in mind that the forestry sector is the only carbon positive sector of our economy. So each time we grow a tree and then cut it down and put part of it into a building or into a book, that’s sequesters carbon out of the air and is in fact a carbon sync. And so it is environmentally friendly, very helpful to us trying to meet our emission targets whilst also providing a resource which is renewable, recyclable at the end of the day biodegradable. So it has a whole lot of features that make it very attractive in this modern day and age.’
• An article ‘Australia Venture Capital Incentives’, a discussion regarding Managed Investment Schemes ( http://www.lowtax.net/lowtax/html/offon/australia/ausvent.html )
‘Forestry tax-incentive schemes shared the limelight with film production schemes, when the ATO attacked various categories of so-called ‘abusive’ schemes. Then, despite a long drawn-out and very public tussle, probably won on points by the ATO, but resulting in a serious fall-off in forestry plantings, the then tax office commissioner, Michael Carmody, released a statement issuing a ‘tax guarantee’ on a range of agricultural investment products. Although they included timber, he was careful not to dwell on its investment appeal, but did describe timber as a safe investment.
‘Mr Carmody referred to a range of timber investments that allow the investor to obtain a tax deduction on the investment with the return relying on forest growth and sale of the timber.
In the statement Mr Carmody confirmed that investors would be entitled to tax benefits with a valid Tax Office Product Ruling. He said: ‘Managed investments, including in the forestry industry, that have a Product Ruling are quite distinct from the mass-marketed, tax-abusive schemes that the tax office has taken action against.’
In September 2006, the Australian government said it was considering placing a limit on the tax breaks offered to investors in plantation forests amid protests, as they are distorting the market and discriminating against small landowners.
Under proposals drawn up by Assistant Treasurer at the time, Peter Dutton, a cap would be applied on the tax-deductibility of investment amounts per hectare. Currently investors in the forestry sector receive a 100% first-year tax deduction on their investment.
The schemes had come under increasing attack from farmers who argued that they drive up land and water prices, and are creating a new class of absentee landowner.
Some coalition members of parliament also called for the review to be widened to include other agribusiness schemes that offer big tax deductions to investors, including avocados, olive oil and pearls.
However, the issue split the coalition, and Forestry and Conservation Minister at the time, Eric Abetz came out in support of the tax schemes.
In December 2006, Senator Abetz and Peter Dutton announced new arrangements for the taxation of investments in forestry managed investment schemes (MIS).
The Ministers argued that the new arrangements would provide greater certainty for investors and will ensure the continued expansion of Australia’s plantation forestry estate, so reducing the country’s reliance on native forests and on overseas imports.
The new arrangements also recognised the critical role plantation forestry plays in sequestering greenhouse gases. Additionally, the decision addressed concerns about the level of commissions charged.
The government decided that, with effect from 1 July 2007, investors in forestry MIS would be entitled to immediate upfront deductibility for all expenditure provided that at least 70% of the expenditure is directly related to developing forestry.
Then in September 2007, the then Australian Treasurer, Peter Costello hailed the introduction of legislation providing tax concessions for carbon sink forests as an important practical measure to reduce Australia’s net carbon emissions.
The Tax Laws Amendment (2007 Measures No. 6) Bill 2007, introduced into Parliament on September 13th, was designed to allow carbon sink forest operators to claim a tax deduction for the cost of establishing trees in a qualifying carbon sink forest.
To help the carbon sink forest industry establish a strong foundation in Australia, an immediate deduction would be allowed for a five year period from 1 July 2007, it was announced. From 1 July 2012, the immediate deduction is replaced with a write-off rate of 7%. The write-off period starts on the first day of the income year in which the trees are established and ends 14 years and 105 days later.
To qualify for tax deductibility, carbon sink forest operators must comply with environmental and natural resource management guidelines.’
Senator Abetz has been rather concerned at my interest in this matter, for example, Senate Standing Committee on Rural and Regional Affairs, Answers to Questions on Notice, Hansard page 130, 27/05/08:
‘Senator Abetz - There is a nuisance in Tasmania who likes placing advertisments. Part of the advertisement says, ‘Plantation managed investment schemes promoted and protected by Senator Abetz the former Minister for Forests will now be under close scrutiny by the Australian Taxation Office’.
Senator Abetz , you should know that I am still very interested in this issue – and the millions lost on these Ponzi schemes – and will continue to seek answers under Freedom of Information.
Meanwhile, I suggest that if a pulp mill fed on only plantation timber is built, these MIS scams will have to rise from the dead.
Now that would be a miracle, wouldn’t it Senator Abetz?
First published: 2012-04-03 01:29 PM