Michael Pascoe writes:
Talking of financial “advisers” giving in
to the temptation of commission
conflicts, the timber plantation industry will be working hard to undermine a
reported attempt by Treasury to tighten up on the generous tax treatment that
drives its managed investment schemes.
Just like financial advisers, there are
some reasonable plantation managed investment schemes, but there are plenty
that are not. An easy question to ask about the ethics of the game is what
other sort of “financial investments” need to offer an industry-average
commission of 10 per cent to the “advisers” flogging the things?
The AFR yesterday reported Treasury is
examining the future of the 12 month prepayment rule which allows investors to
claim a 100 per cent deduction for money they give to managed investment
schemes to establish the plantations.
“While Treasury is understood to be
considering reducing the tax-deductible amount, Forestry Minister Eric Abetz is
pushing for full retention of the scheme,” reports John Breusch.
Good luck to Treasury – it would be taking
on a powerful, commission-driven lobby. An example of how dodgy the structures
can be is the relatively small percentage of the investor’s dollar that actually
goes into the agricultural activity of putting trees in the ground and growing
Marketing, declared and hidden commissions
and fat profits for the promoters can take 50 cents in every dollar. But 100
cents are tax deductible.
The result in some agricultural areas is
that the $1 billion plantation industry has an advantage of more traditional
agriculture. Australia has plenty of dirt that is well suited to growing trees and not
much else, but the tax-and-commission-driven MIS operations can afford to buy
rich dairy land in Victoria, for example, and put it under timber. Try running a dairy farm
when only half of the capital invested actually goes into the business.