Does the existence of an option to sell trees before harvesting affect the operation of section 82KZMG?

Does the concession in section 82KZMG of the Income Taxation Assessment Act 1936 (ITAA 1936) that facilitates an immediate deduction for certain prepaid expenditure incurred under a plantation forestry managed agreement apply if the agreement contains an option to sell those trees planted and tended for felling to another entity before harvesting?

Yes. The concession in section 82KZMG of the ITAA 1936 will still apply even if another entity buys the trees for felling.

A taxpayer prepays an investment of $10,000 in a plantation forestry managed agreement to plant and tend trees for felling. The agreement has an option to sell the trees before they are harvested. The prepaid investment relates to seasonally dependent agronomic activities that must be undertaken by the manager during the establishment period. If the option is exercised the trees may be harvested by another entity.

Paragraph 82KZMG(3)(a) of the ITAA 1936 provides that the concession applies where the agreement is for the planting and tending of trees for felling. There is no requirement that the entity planting and tending the trees for felling be the same entity that harvests the trees. Although they may be harvested by another entity, the trees are still being grown for felling.

Accordingly, the test in paragraph 82KZMG(3)(a) of the ITAA 1936 is satisfied.