Forestry pretenders on a gravy train

This is a tale about Temma: a tale about how a small historic plot of land has been exploited by distant landowners motivated by the excesses which have characterised the last few years.

It is a tale of failed public policy.

One hundred years ago, Temma, situated down the wild West coast of Tasmania, 85km from Smithton, was the port for the 700 residents of the tin mining town of Balfour.

Temma Farm was established to help feed the town.

However Balfour didn’t last long as a productive mine. Today, Temma is a collection of a few shacks, a small sheltered harbour and a nostalgic reminder of times gone by. The farm continues, a bit over 1300ha in area. A patch of grass surrounded by the Arthur Pieman Protected Area.

Since the mid 1990s companies involved in managed investment schemes (MIS) have bought farm land and leased it to investors so that the latter could pretend to carry on a forestry business and as a consequence, obtain a tax subsidy by way of a deduction for the amounts paid to MIS promoters.

MIS promoters couldn’t believe their luck when they continued to be deluged by investors seeking tax deductions. There was no downside. The possibility of poor returns was ignored. The gravy train had a full head of steam. The MIS promoters were acquiring large tracts of land, using cash from investors and (indirectly) subsidies from taxpayers.

Great Southern Limited (GSL) was one of the earliest and most aggressive MIS promoters. In 2004 GSL issued a prospectus (a Product Disclosure Statement or PDS) offering to plant 5,000ha for investors. They were flooded with applications. As a result 21,000ha were planted in 2005 and a further 6,000ha in 2006.

If sufficient land was not available then GSL had to refund amounts to investors. What a wasted opportunity. Suitable land was becoming harder to find on the mainland. GSL spied an opportunity in Tasmania and started buying land here.

The plantable areas of Temma Farm (800ha) were planted in April 2006 pursuant to the 2004 PDS. Investors paid GSL $7.2 million for their Woodlots prior to June 30, 2005, of which we (the taxpayers) contributed approximately $3 million. Flush with cash, GSL was able to complete the land purchase for $6,224,000 on June 29, 2005. At that stage they were already in front. Enough to cover some of the commissions and fees to the lawyers, financial planners and others who had clambered aboard the gravy train.

Just the matter of a few trees to plant. The ATO’s prepayment rules allowed time for this. The trees were planted in April 2006. The planting contractors were paid in June 2006, probably using funds from the next wave of investors. That’s how Ponzi schemes work.

The independent forester employed by GSL (and relied on by the ATO when issuing Product Rulings) had a responsibility to ensure that land suitable for growing 250 cubic metres of green timber in 10 years was planted.