Appeal likely if ATO decision negative

The non-forestry MIS sector is confident of a positive outcome from the Australian Tax Offices test case that would vindicate its view that investors in such schemes are carrying on a business.

The tax office is currently considering the test case for a 2008 project, and will decide if it will issue a product ruling for it.

If it doesn’t issue a product ruling, WA Business News understands that MIS industry alliance, Agriculture Investment Managers Australia, will make a formal appeal, which is expected to go straight through to the full bench of the Supreme Court.

Adviser Edge managing director Shane Kelly said that, with the tight deadline of June 30 for the test case and subsequent appeals to be finalised, the transition period for the industry could be extended.

“If things dragged out there would be some scope for the industry to appeal to the government to extend the transition period,” he said.

“It would appear unfair if there was still no decision one way or the other. If the industry is being harshly dealt with without any judgement there would be a fair case for extension.”

The industry has also received some indications that new federal government was more in favour of maintaining non-forestry MIS than its predecessor, and could launch a formal due diligence study into the sector before making any legislative changes.

The test case comes after an earlier federal court decision, which found in favour of an MIS investor in a Kununurra Indian Sandalwood project.

In September, Federal Court judge Robert French found that Perth accountant, Gino Lenzo, who invested almost $30,000 in the project, did not enter the scheme just to obtain tax benefits.

Justice French said that, while he accepted there were tax benefits to be derived from the investment structure, he did not accept that:

“He, or the manager or promoter, entered into or carried out the scheme for the dominant purpose of enabling him to obtain a tax benefit in connection with the scheme”.

Following the ruling, Daniel Romano from Wilson & Atkinson, the lawyers for Mr Lenzo, said the comments added weight to the industry’s view that the projects were genuine commercial arrangements.

The ruling rejected the tax commissioner views of similar styled arrangements as being a ‘passive investment’ as opposed to the investors carrying on a business, he said.