Economic Effects of Income-Tax Law on Investment in Australian Agriculture: with Particular Reference to Managed Investment Schemes and Division 35 of the Income Tax Act Essay

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ECONOMIC EFFECTS OF INCOME-TAX LAW ON INVESTMENT IN AUSTRALIAN AGRICULTURE: WITH PARTICULAR REFERENCE TO MANAGED INVESTMENT SCHEMES AND DIVISION 35 OF THE INCOME TAX ACT Rick Lacey laceyrh@optushome.com.au and Alistair Watson aswatson@bigpond.net.au Contributed Paper to the RIRDC Session of the 48th Conference of the Australian Agricultural and Resource Economics Society, February 11-13 2004, Melbourne, Australia This paper is a summarised version of a draft final report of a project supported by the Rural Industries Research and Development Corporation. John Crase of Crase Partners, Adelaide is also involved in the project. The project has been assisted by a Steering Committee consisting of Jeff Davis (RIRDC), Michael Dirkis (Taxation Institute of Australia), Clay Manners (Victorian Farmers Federation), Bob Officer (Capital Research, Melbourne) and John Wickerson, Australian Taxation Office, Canberra). Introduction The conceptual problems and practical effects of taxation on farmers are a familiar theme in discussions of Australian agricultural policy. This paper takes a different direction from other studies that have concentrated on taxation issues arising from special characteristics of farm businesses such as the averaging of incomes for tax purposes, tax treatment of livestock and depreciation concessions for ‘approved’ investments (e.g. water conservation). Instead, the paper is concerned with two relatively neglected topics in agricultural taxation: • • Managed Investment Schemes (MIS). Recent Division 35 provisions for non-commercial losses. Briefly, MIS are arrangements whereby funds from investors are pooled to create large projects that are managed by promoters subject to licensing requirements of the Australian Securities and Investment Commission (ASIC). The operations of MIS are greatly affected by their taxation status and its

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