Agribusiness

[willy1111]

Just interested to know if anyone here invests in agribusiness with its huge tax benefits.

Obviously I realise that you need to spend $1 to get a maximum of $0.485 (soon to possibly be $.45) back. But if that $1 was an investment into agribusiness which in 10 years time could be harvested and sold for $2 - and the $.485 you receive back as a tax refund you can do with what ever you like - ie invest into property or shares that could turn into a significant amount with gearing.

When I asked my accountant his opinion - he seemed to be pretty negative towards it - saying they spend all their time trying to get their clients out of it. I think he said the tax/product rulings were overturned or there were crowds out there saying they had them when they didn't - and then the deductions were disallowed.

I am pretty sure GeoffW has been burned in the past.

Would be interested to hear if this forms part of anyone's investment strategy at the moment???

and any comments if the product rulings are more concrete now-a-days. I would think so for companies like Great Southern and Timbercorp who are public companies listed on the ASX, but who knows??

Cheers

 

[Shirley]

We have a small mango farm which doesn't make a profit (expenses are quite high as we have a manager who looks after it). Unfortunately we can't claim any of the expenses as our income is too high. I think you have to have an income of less than $40k to be able to claim anything.

I know this is different to what you are looking at but check things thoroughly before going into it. We've been disappointed financially, but then the mangoes at Christmas make up for it and the 8 acre block has substantially increased in value.

 

[Mry]

Now is the time of year where the dodgy investors come out to nab people who want to save on tax. For agribusinesses, thats goes double.

The tax office sent this link to all tax agents last week on our update. It was quite funny to read through actually.

http://www.ato.gov.au/atp/content.asp?doc=/content/74269.htm

I don't really believe in it to be honest. Too many dodgy operators out there.

 

[geoffw]

I am pretty sure GeoffW has been burned in the past.

Yep. Bigtime.

The burn would have been heaps less if ATO had at least laid down the rules before I started. Or at least not waited four years before disallowing.

I still have some $$ in one agribusiness which has not folded. I don't hold much hope- but even it it does spectacularly well, it will not recover a fraction of what I have lost.

I believed all the stuff about growth of the business- but mostly relied on the tax deductions to make it a cost neutral investment.

I was wrong on all counts. The business itself collapsed- as well as the tax deductions. And I was fined for avoiding tac.

There is a system of ATO approvals of a project now. But I am not going into that style of investment ever again.

 

[Pablo]

Willy,

Don't do it.

I have been burnt as well as allot of people at my work.

If you sit down and do your sums you will find that you are not getting a very good return for your money even with the tax advantages.

You will find that if you buy a plot of grapes for say $9k it only actually costs $2.5k to plant the crop and the rest goes on marketing, commissions, and profits.

Also apparently allot of the smaller timber plantations are specifically set up to go bankrupt resulting in you losing your money.

And then there's the tax man, if he takes a dis-liking to your choice of investment you can pretty much kiss it good bye. My workmates and myself all got sucked in by a financial advisor selling accounting software franchises we were supposed to get $15-$20k back for a $12k investment through a limited recourse loan. The tax man of course didn't like this and took the business to court, they lost in the first 3 attempts but kept coming back until the business went bankrupt trying to fight them off, so we all lost our first initial investment then 4 years later the ATO comes back saying we owe them X amount in interest and Z amount in penalties. So all up I lost about $30K but I was lucky as I got in at the tail end of it and only bought 1 Franchise some people who were in one it from the start had 4+, one guy even fled the country owing about $150k.

Even now I sit in my backyard on a hot summers day and imagine the pool I could have bought with that money.

Pablo.

 

[Mry]

The worst thing to happen in Agribusinesses is that they get a product ruling on the tax treatment given a certain set of circumstances ..... and then don't follow what they told the tax office they would be doing which screws it up for their investors (which is really, really unfair). For example, they could say to the ATO they intent to spend it on seeds and wages for planting the seeds (deductible) instead of spending it on high commissions for their 'sales' team (capital) which is what usually happens.

If the tax office gives a product ruling and the agribusiness followed what they said, there would be no problem.

This is a great piece of advice I received from my father - If you get shown an investment scheme from a group, remember this - it was probably already shown to rich people and/or investment managers who rejected it outright. No one in the serious investment market with a great product offers it to the general public. Why are they giving this offer to you? What do you have to offer that they don't, other than gullibility?

 

[depreciator]

I was caught up in the same fiasco as Geoff years ago. I was a tad naive. It was sold to me by a financial planner who I realised later was really just a sales rep. All was well till the ATO retrospectively disallowed the scheme. I settled with the ATO and I have successfully managed to block from my memory what the cost was.
This year I have to pay some CGT. An accountant recently told me that there was a way around this or at least a way to mitigate it by investing in an agribusiness scheme. Amazingly, for a heartbeat I wondered whether I should consider it. Then I slapped myself around the head. I'll pay the CGT.
Scott

 

[geoffw]

Depreciator

Something which added to my own naivety. I was paying the financial advisor ($2k pa) for advice- which gave me more assurance that I was getting good independent advice.

I didn't realise that he was earning heaps in commissions from dodgy schemes, a lot more than FPs selling straight managed funds..

 

[willy1111]

I am sure I heard Peter Spann saying that he invests with Timbercorp. At one of the investor updates he had someone in from Timbercorp to do a section. At the end of it, I am sure Peter said he was putting money it.

He also said that he pays bugerall tax. Now I don't know if this means that he leaves the majority of his income in his companies, pays company tax and not much personal or what the full story is. He said that he had been audited the last 6 out of 7 years or something and that the ATO found him to owe them about $37 - which he went on a payment plan for.

I just thought that if someone of Peter Spann's creditentials was investing in the sector, and I assume they would be promoting to their financial planning clients, that may be it was worth a look.

It would be interesting to get the full picture of how they pay bugerall tax.

 

[WashingtonBrown]

Why anyone would bother with these styles baffles me..

I have some friends that have just gone into "Trees" or something silly like that.

I steer clear of any investment where the motivation is tax driven.

I'll happily pay capital gains tax thanks!

 

[geoffw]

Peter Spann does promote "tax effective" investments.

Some, perhaps even a lot, are well managed and will return a good profit.

Like a lot of things, it's the 99% which give the rest of them a bad name.

 

[Bill.L]

Hi all,

The agribusiness sector is in an interesting phase, just as it always is.

Today there is more certainty as to the deductability of an investment. The rules for any MIS are fairly clear from both an ASIC and an ATO position. There are compliance committees amongst other safeguards to protect the integrity of the original offer (in terms of meeting the deductability criteria)

However all the new rules and safeguards have come at a cost. This cost is obviously borne by the investor. For some of the timber schemes, the price for the investor is up to 6 times what the investment actually costs to plant. Ongoing maintenance is usually deducted from the proceeds at the conclusion of the scheme.

So while the investor now has more certainty for the deductability of the project, the net returns at the other end of the scheme, pay for this certainty.

When performing the due diligence on any of the schemes, you have to realize that any of the projected returns (usually given by the 'independant expert' because ASIC frowns upon project managers giving their own forecasts), are at the best rubbery, but in reality fail to take account of all the factors that will affect the market. Geoff's tea-tree oil is the classic example here, where a large project started to produce the oil and the international price collapsed by 50%, almost overnight. This decimated the industry and the forecasts of many. It then lead to the abandonment of plantations, and eventually the ATO looking at the deductability of some exotic schemes.

'Independant expert' is meant to be someone of authority in the industry, that creates a report for the project manager on the proposed scheme. I personally question the independance of some of the experts opinions.

For example, one of the major companies has several different schemes offered to investors, when I read the 'independant experts' reports on 2 of these schemes I noticed a similarity (try paragraphs that were word for word the same), even though the projects were in different states, with a different crop type, and with the 'independant experts' being totally separate companies (to each other)!! ASIC rules as to who you can use and the level of contact with the 'independant expert' are pretty specific.

There are some schemes where the investors will make money as well as being deductable. However there are many schemes where the is almost no chance of the investors ever getting their investment back (or even the 51.5% they need to break even on the deal).

I am speaking from the other side of the fence here as our company has been looking at establishing either a MIS or an excluded offer with a product ruling.

bye

 

[handyandy]

I am sure I heard Peter Spann saying that he invests with Timbercorp. At one of the investor updates he had someone in from Timbercorp to do a section. At the end of it, I am sure Peter said he was putting money it.

I just thought that if someone of Peter Spann's creditentials was investing in the sector, and I assume they would be promoting to their financial planning clients, that may be it was worth a look.

Maybe these comments as per Willy should be read before Dep and then give thought to exactly what depreciator says.

Depreciator

Something which added to my own naivety. I was paying the financial advisor ($2k pa) for advice- which gave me more assurance that I was getting good independent advice.

I didn't realise that he was earning heaps in commissions from dodgy schemes, a lot more than FPs selling straight managed funds..

 

[geoffw]

Something which another investor received very recently.

When I settled, I borrowed against my house to pay the outstanding balance, so that it was paid off and out of the way.

Some people could not afford to do this, so entered into an arrangement to pay off their debt over a period of time.

The investor's story:

I entered a payment arrangement about 2 years ago and assumed that everything would carry along until my debt was finally settled. A couple of months ago, I received a letter from the ATO demanding that I renew the arrangement and including a rather onerous form.

I completed it, offering to continue the arrangement as was, and returned it

Much to my surprise, my offer was rejected - the letter I received is below.

When I called the number in the letter, and asked why the arrangement that was perfectly OK 2 years ago was no longer acceptable, I was told that the 2 years was an interim arrangement and that the ATO is now moving to complete recovery. I was told that an appropriate repayment time was no more than 12 months (my offer would have taken about 6 years to pay out)

And the response from ATO:

Payment demand for your income tax account

Immediate payment required

An amount of $X remains outstanding on your income tax account. This includes an amount of $Y from your mass marketed schemes settlement.

It is a condition of your settlement that you must either pay this debt in full or enter into and meet the terms of an acceptable payment arrangement.

We are unable to accept your payment arrangement proposal for the following reasons:
* The payments you propose will not pay your tax debt within a reasonable timeframe
* Your proposal shows you have the capacity to pay more
* You have assets, or equity in assets, that could be realised and used to pay your tax debt

What you must do

You must pay your outstanding debt immediately.

If you cannot pay your debt in full today, you must contact us on +61 1300 130 912 within 28 days of the date of this letter to make an acceptable payment arrangement. You may still be eligible for interest concessions on your arrangement. We will discuss the details with you when you phone us.

What happens if you do not respond?

If you do not respond to this letter we will impose the general interest charge (GIC) at the statutory rate from 5 June 2006. The GIC rate is currently 12.61%.

We can also commence legal recovery action without further warning. We could take one or more of the following actions:
* a summons or writ may be issued
* a garnishee notice may be issued

If we take legal recovery action, you could be liable for any associated costs.

Debts not covered by the settlement deed

For debts not covered by the settlement deed, GIC accrues on the outstanding balance until the entire amount has been paid. Interest is calculated on a daily compounding basis. GIC is currently imposed at a rate of 12.61% per annum (reviewed every three months). The GIC is tax deductible in the year that it is incurred.

More information

If you have any questions please phone +61 1300 130 912 between 8.00am and 6.00pm (Eastern Standard Time) Monday to Friday.

Protecting your privacy when you phone us

If you phone us we need to know we are talking to the correct person before providing account information. We will ask you for details only you, or your authorised representative, would know. It will be helpful if you have your tax file number or Australian business number ready when you phone us.

Do not ignore this payment demand. We require immediate payment of your debt.

Moral of story: Play straight with the ATO. It's like dealing with the Mafia.

 

[topcropper]

I am sure I heard Peter Spann saying that he invests with Timbercorp. At one of the investor updates he had someone in from Timbercorp to do a section. At the end of it, I am sure Peter said he was putting money it.

He also said that he pays bugerall tax. Now I don't know if this means that he leaves the majority of his income in his companies, pays company tax and not much personal or what the full story is. He said that he had been audited the last 6 out of 7 years or something and that the ATO found him to owe them about $37 - which he went on a payment plan for.

I just thought that if someone of Peter Spann's creditentials was investing in the sector, and I assume they would be promoting to their financial planning clients, that may be it was worth a look.

It would be interesting to get the full picture of how they pay bugerall tax.

If someone invests in Timbercorp TIM, or Great Southern Plantations GTP, or one of the other companies, the investor is investing in the company that makes all the money selling the timber plots. It is really a very lucritive business, and I made a good bit out of GTP a few years ago. I took my profits as I was worried about if the government changed the rules about tax, the companies share prices would plummit. Both companies share prices have risen from 60c or so to nearly $4 in 4 years.

These companies are just as much fund managers as agribusiness's. Owning shares in these companies doesn't mean you own a heap of trees. You own a bit of a company that makes money from selling trees.

An investor can then invest in the schemes that these companies promote. I have never invested in plantations or ag schemes. This is no recomendation to do so, although the timber companies could be a good investment if the rules don't change.

See ya's.