Date posted: 04/03/2022

Submission on the officials’ issues paper on forestry aggregation issues

CA ANZ recently provided feedback on Inland Revenue’s proposed changes to the taxation of forestry to make aggregation easier

In brief

  • Aggregation would be desirable where both amalgamating forestry businesses are carried on through look-through structures
  • The rule regarding transfer of emissions units at market value should be relaxed for aggregation purposes

An officials' issues paper setting out a tax issue that may be a barrier for small forestry block owners to group together to achieve economies of scale for harvesting timber, and potential options to address it.

In CA ANZ’s view:

  • Foresters will not always wish to aggregate. Foresters often have in place commercial arrangements which mean that aggregation is not required or necessary to achieve efficiencies.
  • Aggregation would be useful for those who cannot or do not wish to undertake the above structures and who see efficiencies in aggregation.
  • The choice of a look through entity can have adverse tax consequences on aggregation because the unrealised capital gains on the land or forest will become realised. Aggregation would be desirable where both amalgamating forestry businesses are carried on through look through structures.

CA ANZ recommended:

  • Foresters have the opportunity to transfer their share in the amalgamated entity to an associated person - such as a related company or family trust of the owner.
  • The rule regarding transfer of emissions units at market value be relaxed for aggregation purposes
  • The Government should consider at the outset whether the proposed changes should be extended to other primary sector industries and be able to articulate the reasons why or why not.

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