Issue
For the purpose of the definition of business real property in subsection 66(5) of the Superannuation Industry (Supervision) Act 1993 (SISA) does a leasehold interest include the trees in an afforestation arrangement?
Decision
Yes. A leasehold interest does include the trees where the afforestation arrangement only confers an equitable interest in the trees for the purpose of the definition of business real property in subsection 66(5) of the SISA.
Facts
Under the afforestation arrangement an investor enters into a lease and management agreement (the agreement) with a promoter.
The investor also enters into a contract with the promoter to have trees planted on the land and maintained until maturity.
When the trees reach maturity they are felled and sold.
The agreement provides that the investor shall at all times have full right, title and interest in the timber and the right to have that timber sold for their benefit.
Reasons for Decision
Business real property is defined in subsection 66(5) of the SISA and includes any leasehold interest in real property where the real property is used wholly and exclusively in one or more businesses. 'Business' is defined in subsection 66(5) of the SISA to include any profession, trade, employment, vocation or calling carried on for the purposes of profit including primary production and provision of professional services.
This arrangement is covered by a Product Ruling (PR 1999/16) issued by the Commissioner of Taxation. In that ruling, the Commissioner accepts that the investor who participates in this arrangement is carrying on a business for the purposes of the Income Tax Assessment Act 1997 (ITAA 1997). As the definition of business in the SISA is broader than that of the ITAA 1997, it must follow that the lease arrangement as being business real property as defined in subsection 66(5) of the SISA.
Where the investor has an interest in the land, on which, the trees are growing and full right, title and interest in the timber and the right to have it sold for their benefit, they have a profit a prendre in respect of the timber. The leasehold interest for the purposes of the definition of business real property in subsection 66(5) of the SISA, includes the trees.