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Govt reconsiders farming investment tax schem -

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(generated from captions) price. Hamish Fitzsimmons

reporting from Perth. Are they

simply brazen tax avoiders who

are making life difficult for

traditional farmers or are they

legitimate investors whose

capital is creating much needed

agricultural opportunities for

rural Australia? So-called

managed investment schemes in

agriculture and aquaculture

have this month been entangled

in a political frack a in

Canberra. Having at first flourished with approval there

the Government and the tax office. Then the government

announced recently it would

join with the Australian tax

office to try to end tax

deductions allowed under such

farming skeeps in all but the

foresty industry by tend of

June. But faced with a party

room revolt or the threat of a

party room ve volt, the Prime Minister has pledged to

consider a phase out period of

around 12 months although that might alay the Government's

political problems in an

election year, tax experts

suggest it's unlikely to

resolve the issue. Greg Hoy

reports. It's just like that,

they're gone. Workers at a Victorian olive tree nursery

who have lost their jobs and

former work-mates who fear the

same fate. We've done over a

million cuttings just before

Christmas and they really

worked their butts off for me,

hey. They never complained

once. Now it's just all sitting

there, they're going to

waste. The human cost of a

heated debate over the legitimacy of managed

investment schemes in

agriculture and aquaculture where investors have been

granted tax refunds of 100%

over three years on investments

made in rural production.

Everything from timber to

mangos, tomatoes to well, you

name it, in fruit, vegables and

meat and in aquaculture, even

the production of pearls. In

the future, if Australia is to

really make an attempt to be

the food bowl of Asia or

develop export markets in a

raichck of agribusiness

products, you know, we're going

to need, we're going to need sophisticated management and

with the Government putting a

question mark over this form of

funding activity, A, it's near

sighted and probably B, it's -

they're taking a huge political

risk. MISs just been a very,

very effective tool for raising

capital into the agriculture and horticulture industry which

other investors seem to shy

away from because it's such

long lead times with getting a

return on your investment. Like

the Government, the National Farmers Federation is now

divided on the virtues of such

schemes which some primary

producers argue are unfair

competition for farmers and a

brazen tax rort. The Government

is subsidising high net worth

city-based people to put money

into agribusiness schemes,

there's no audit process which

focuses the pros on best

practice therefore the projects

do not necessarily ever deliver

on a broad scale the type of

outcomes that they outcomes that they forecast. I

know dha our projects are going

to have great outcomes for

those people who have put money

into them. I mean we've proven

that we can get the yields, our

prices we budget on are very

conservative. This stacks

up. Leading the opposition,

agribusiness consultant Sam

Patton commissioned by a group

of traditional primary

producers found a sympathetic

ear in Federal Treasury. They

then invited me on a couple of

telephone hook ups to clarify a

few things and I opened up some

dialogue with some senior

officials in Peter Costello's

office and fisheries an

forestry and I must commend

Peter Costello's office. He's

always been available, proactive. Indeed, Treasurer

Peter Costello is seen as

leading the campaign to shut

down tax relief for managed

investment schemes to bolster

the budget's bottom line.

Surprising in that it was the

same Treasurer who six years

ago introduced that very tax

relief, which, with six subsubsequent favourable rule

frtion the tax office, promoted

strong growth in the sector.

Then this month came the shock announcement that after so-called extensive discussions

with the industry, at the end

of the financial year the tax

office would disallow refunds

on such investments for all but

the timber industry. We

expected a period of

consultation and review which

didn't seem to happen and, you

know, the weekend before the

decision was made we heard that

there was some discussions taking place and something

might happen and on Tuesday

they announce basically the

finish of non- forestry MIS and

it was just devastating to our

company and our staff. It's

just unfair, it really is. I

mean these kids have gt lives

too. It's alright for them,

they're still sitting up there

getting their bloody weekly pay

and that and these ones just

been booted aside. I think

these people, these MIS

promoters have almost developed

a handout mentality, that it's

almost like welfare in reverse

in so far as they've come to

expect that there's just this

lump of money that's going to

be deducted on behalf of

investor commitments an they've

set their business models up on

that basis, on huge scale and

there was never any undertaking from the Federal Government

that was necessarily going to

persist. If it's such a viable

business, why does it need the

taxation incentive to make it

stand up? Look, investing in

agriculture there are low

returns. This is an emerging

industry so it has the risks

associated with agriculture

plus an emerging industry. So

it has to be some incentive to get this investment into the

bush. In one form or another,

these things have been around

for decades. But the latest

argument has reverberated off the walls of Parliament House

and the Coalition's joint party

room including today. Hardly

desirable in an election year,

that's why the Prime Minister

stepped in overruling three ministers pledging to consider

a phase out period of around 12 months, though the Treasurer has insisted that should be

less and the industry is crying

out for more, or even for a

stay of execution. For those

who have already lost their

job, it's getting ridiculous

and the confusion is by no

means over yet. If one of the

rating agencies is correct and

that there are 10,000 people

that are going to be put out of

work in Victoria alone, it's

going to add up to a lot of, a

lot of lost votes for the

conservative forces. So,

companies promoting such

managed investment schemes are

to be outlawed, even if cabinet minister Malcolm Turnbull

himself is a foundation

shareholder of one such

company, Arafura

Pearls. Minister Turnbull was a

foundation investor in

Arafura. And through his

private company Wilcrow, he

still is. And Arafura says

managed investment schemes are

essential to develop

agribusiness in rural

Australia. If that sounds messy

enough, wait till it gets to

the courts. This is not the

aggressive tax planning basket.

These are people who are

actually going to make some

sort of commercial return.

Well, are hoping to make some

sort of commercial return. It

will, it seem, fall to the

courts to decide if investors

in MIS are conducting a

legitimate business, or as the

ATO says, they should be

dismissed as just passive investors ineligible for

upfront tax refunds. They've tried that, they've run many,

many cases. We've had a series

of four or five cases over the

last five or six year where

they've run the argument that

these distant investors are

simply pasive investors.

They've failed basically on

every occasion and they've - I

just - they really haven't

received any support from the

courts. In my view, it's very

un likely a tax office is going

to succeed on this. It's a bureaucratic and political

pickle that may not be

clarified before the election.

That might be good news for the

Government but bad news for

those next in line for

retrenchment in the bush,

anxiously awaiting some sense

of certainty. I've come to

enjoy my job, look forward to

getting here every day and the

prospect of being back in the

unemployment line, looking for

work, at my age of 42 and

competing with all the

youngsters, it's very

daunting. We need our kids to

be employed in rural based

activities and given some

certainty and given some