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Narrowing the options

INVESTORS have two options available to them once a decision has been made to invest in managed investment schemes – become a shareholder, reaping future potential profits as scheme promoter through management fees or become a direct investor in the schemes by becoming the grower.

But which form of investment is likely to reap the bigger rewards?

DJ Carmichael senior analyst Peter Strachan believes the answer is simple.

“I know where I would rather put my money and that is in the shares of the manager, because they are going to be the ones making the money through the fees doing the work,” Mr Strachan said.

But you don’t get a tax deduction from buying shares in Timbercorp, you only get a tax deduction when you buy a hectare of trees.

“When the Timbercorp or Great Southern chop down the tree, they take a fee for doing it and they manage it and they take a percentage of the price and they get, as a fee, 5 per cent of the revenue,” Mr Strachan said.

“If you believe that those companies are a growing business, then year by year they are going to plant more trees and year by year they are going to be cutting down more trees, so that they will be getting the fees planting the trees and cutting the trees.

“The reason you might think about investing in trees is that, rather than giving $5,000 to the tax man, if you invest $10,000 in trees so you don’t have to give $5,000 to the tax man.

“However, in 10 years’ time when they are cutting the trees down, your $10,000 worth of trees will be $27,000 in revenue and, after fees and charges, you may have to pay tax on $18,000 instead of $10,000. So the taxman is happy, he is saying ‘I am prepared to forego the $10,000 you owe me now because in 10 years’ time you will have to pay me tax on $18,000’.

“But if you retire and your income falls then you can benefit from being in a lower tax bracket, so your tax on the revenue will be lower.

“Where the tax man gets narky is when these people come up with these schemes that don’t have a snowball’s chance in hell of ever making a profit for anyone other than the promoter.”

Great Southern Plantations general manager Cameron Rhodes said it depended on what the investor was seeking to gain through the investment. He said it was possible for both types of investors to gain.

“Really you are deriving income from two different sources,” Mr Rhodes said.

“I think it is possible to have a win-win scenario with these schemes.”

But, unlike investors who have got a direct investment in a plantation, shareholders have the benefit of seeing day by day how their investment is performing. And since the end of last year shareholders would be buoyed by the turn around in share performances. Great Southern Plantation is currently trading at a 10-month high of around $1.20, while Timbercorp and Tasmanian timber producer Gunns Ltd are also trading at close to 12-month highs.

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