The Ministers said that the new arrangements will provide greater certainty for investors and will ensure the continued expansion of Australia's plantation forestry estate, so reducing the country's reliance on native forests and on overseas imports.

The new arrangements also recognise the critical role plantation forestry plays in sequestering greenhouse gases. Additionally, the decision addresses concerns about the level of commissions charged.

The government has decided that, with effect from 1 July 2007, investors in forestry MIS will be entitled to immediate upfront deductibility for all expenditure provided that at least 70% of the expenditure is directly related to developing forestry. Such direct forestry expenditure comprises: expenditures associated with planting, tending and harvesting of trees at any time over the life of the investment; and annual costs of the land used to develop forestry, whether that be effective rental costs or lease payments for land.

The deduction will be provided by way of a separate statutory provision. It will not be necessary for taxpayers to demonstrate that they are carrying on a business in order to access the statutory deduction.

The government will not remove deductibility under the general deduction provision - section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) - for contributions to forestry MIS. However, under the general prohibition against double deductions (ITAA 1997 section 8-10), the forestry MIS investor will not be able to claim a deduction under both provisions.

The Australian Taxation Office (ATO) will issue administrative guidance to the effect that promoters wishing to receive a Product Ruling to market schemes under the new statutory provision must provide the ATO with sufficient information to enable the ATO to assess whether the expenditure directly related to forestry incurred under the relevant scheme will exceed (in present value terms) 70% of the total cost charged to investors.

The government will consult with industry over the development of this guidance.

Subject to further analysis, forestry investors who use the specific deduction will be treated as passive investors for GST purposes (i.e. persons who buy shares in companies or units in unit trusts) and will be removed from the GST net. Further consideration of GST treatment would occur in consultation with stakeholders and the states and territories.

The government has agreed that the arrangements for providing tax deductibility for forestry MIS be reviewed within two years of commencement in the context of the development of a secondary market. It will also consider the issue of taxation arrangements for non-forestry agribusiness MIS in the New Year.

The government said that it is also supportive in principle of removing impediments to secondary markets for forestry MIS interests. The Treasury and the Department of Agriculture, Fisheries and Forestry will review this issue and report back to the government within 3 months.