Submission No. 183 Back to full list of submissions
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Joint Submission on Review of Business Taxation
Second Discussion Paper – A Platform for Consultation


The National Association of Forest Industries & Plantations Australia


The National Association of Forest Industries (NAFI) represents companies, individuals and organisations involved in the forest and forest products industries. NAFI presents the forest industries’ views to the people of Australia, governments and public authorities on matters relating to the national development and use of forests and forest products. NAFI’s vision is an ecologically sustainable Australian society based, in part, on dynamic, internationally competitive forest industries.

Plantations Australia is the industry sector focus group for larger corporate plantation timber growers and processors. The organisation aims to gain and maintain bipartisan support of all levels of Government and the community for the timber plantation industry and to be a driving force behind the "2020 Vision" – national plantation strategy.


NAFI and Plantations Australia do not wish to make a comprehensive submission on all aspects of the "A Platform for Consultation" Discussion Paper. The Paper contains a number of sound recommendations that have the potential to benefit industry and the community generally. However, NAFI and Plantations Australia wish to express the strongest possible concern about the option set out in "A Platform for Consultation" in relation to the taxation treatment of standing crops (3.22 page 130). If implemented this option would bring most of the timber plantation establishment programs in Australia to a standstill.

Timber Plantation Policy

At least since the 1960s Australian governments have had a commitment to expanding Australia’s capacity to produce timber from plantations. This policy has been pursued because of the wide range of benefits which timber plantations can provide including income and employment generation, regional development, diversification of rural economies and repair of and protection from environmental degradation. Over the last decade governments have tended to move away from providing direct funding for plantation development projects and have focussed on removing the institutional impediments to plantation expansion and to encouraging private sector investment in the industry.

The Wood and Paper Industry Strategy (WaPIS), released by the Commonwealth Government in 1995, included a goal to "promote plantation development by ensuring that tax treatment of plantations is reasonable and favourable to investment" (p14). Unfortunately there have been delays in completing some of the specific commitments made in the WaPIS and there has been little or no effort made to publicise the taxation arrangements for plantations. Due to this delay, the joint industry-government national plantation strategy, "Plantations for Australia – the 2020 Vision" (1997), reiterates the earlier commitments. Action 25 of the 2020 Vision aims to create "a taxation environment that is fair and not prejudiced against plantations compared with other land uses and that recognises the length of time before plantations generate an income stream" (page 22).

Nature of Timber Plantation Investment

The main costs of establishing plantations are incurred in the first year or two of the life of the investment. These costs include securing suitable land, preparing land for planting, purchase of seedlings, planting, fertilising and protecting the trees. Once the trees are well established the financial commitment is greatly reduced and may be limited to monitoring and protecting the plantation.

Despite the large initial outlay to establish a timber plantation no income is normally realised until somewhere between year 10 and 20 depending on the nature of the trees being grown and the product being produced. The final harvest and primary income from the plantation may not be realised for 30-50 years in cases where slower growing tree species are being used to produce large logs.

Countless reviews have shown that a key reason deterring potential investors from investing in timber plantations is the long lead-time between incurring the cost of plantation establishment and receiving income from harvesting the final product.

Proposed Option for Taxation Treatment of Standing Crops

Under the current taxation arrangements the costs of establishing and tending a timber plantation are immediately deductible. The plantation owner becomes liable for the payment of tax either when the timber is harvested and sold or when the right to harvest the timber is sold. The Discussion Paper contends that this arrangement provides significant tax deferral benefits that are not available to other investors. It is therefore proposed that deductions be deferred until the value of the final crop is realised. However, the proposed remedy does not recognise the economic cost of such a deferral, a cost that does not have to be borne by other investments, which yield immediate returns. If deductions were deferred for 30 years or more the present value of such a deduction would be close to zero and therefore the economic cost of a timber plantation may be up to double that of a short-term crop that is allowed an immediate tax deduction.

The Discussion Paper also suggests that the option proposed would move the taxation treatment closer to the accounting treatment set out in Australian Accounting Standard AASB 1037 "Self-Generating and Regenerating Assets". In fact, the proposed tax treatment will go well beyond what is already a questionable accounting treatment. AASB 1037 will treat the progressive increase in value of standing trees as income but will allow as deductions all planting and maintenance expenditure when incurred. The forest owner will have to pay tax on unrealised income progressively over the life of the plantation, but only after all costs have been recouped. Other businesses are not required to recognise profits as assessable income until they are realised, so plantation forestry is placed at an economic disadvantage. The injustice of this situation would be compounded by the proposal that no deductions be allowable until income is realised.

The plantation industry has serious concerns about the Accounting Standard and the problems of attributing an appropriate value to standing trees, particularly during the period before any economic harvest is possible or where there are no immediate buyers in the market place. Taxing unrealised profits will encourage the earliest possible sale of timber rather than encouraging the best silvicultural practice.

Leaving aside the difficulties of the Accounting Standard, if investors in plantation growing are forced to defer the deductions associated with establishing the plantation for say 20 years, plantation establishment would become completely non-viable relative to other forms of land use. The proposed change to the taxation treatment of standing crops would further compound the disincentive to the long-term investment required in timber plantation enterprises.

NAFI and Plantations Australia note that smaller plantation growers, farm foresters and investors would also be severely disadvantaged by the proposed treatment of deductions associated with planting and tending tree crops. The concerns of these groups are presented in a separate submission to be made by Australian Forest Growers.

Other Issues

On a more positive note NAFI and Plantations Australia are pleased to note that the proposals in the Discussion Paper affecting profits a prendre should lead to tax being paid on a more reasonable basis. However, it could still be argued that further changes are required to provide an equitable taxation environment for companies and individuals investing in timber plantations.


The proposal that deductions associated with the establishment of standing crops be deferred until the value of the final crop is realised is unjustified and discriminates against long-term investment. While this submission focuses on timber plantations, it is understood that there are a number of other crops that would be significantly disadvantaged by the proposal.

Given the commercial and environmental importance of re-establishing tree cover over large parts of rural Australia, and the huge commitment which governments, industry and the community have made to this task, NAFI and Plantations Australia submit that the costs of establishing and tending a timber plantation should continue to be immediately deductible



Robert Bain
Executive Director
National Association of Forest Industries
Angus Pollock
Plantations Australia

15 April 1999


Mr Richard Stanton
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