Forestry and a capital gains tax
From New Zealand Tree grower August 2017
Tenco is one of New Zealand’s largest exporters of forest products. We have built to this position since 1991 when the company was set up to export lumber to growing Asian export markets. Experience and reputation count; from small beginnings Tenco has become the largest independent exporter of New Zealand lumber and New Zealand’s 4th largest log exporter. Tenco has a regular shipping program of their own log vessels and in combination with these and other ships currently calls at 7 New Zealand ports (5 North Island and 2 South Island).
Tenco buys standing forests. Tenco currently has a number of forests which they purchased at harvestable age to log over a number of years for export and domestic markets. Tenco also regularly buys smaller tracts of forest to harvest immediately or immature forests to hold until harvest time. Tenco is interested in broadening the base of owners from whom it purchases forests and stands of trees. A deal with Tenco is a certain transaction. The owner and Tenco will agree on a value of the tree crop and then Tenco will pay this amount to the owner either in a lump sum amount or on rate per volume unit out-turn from the forest depending on the nature of the tree crop.
Tenco knows there are a lot of farmers who have trees that are close or ready to harvest and will be asking themselves how they should proceed with the sale of their trees. For some farmers the kind of certain transaction with money in the bank could well be appealing. Tenco is actively interested in buying harvestable forests or trees from areas including all the North Island (except the Gisborne and East Coast districts) and Nelson & Marlborough in the South Island .
If you own a forest in this area (16 years and older) and are ready to enter into this kind of agreement Tenco is interested to develop something with you.
Please contact: Josh.Bannan@tenco.co.nz
Work: +64 7 357 5356 Mobile: +64 21 921 595 www.tenco.co.nz
Both the Labour and the Green political parties are considering a capital gains tax. Calculating the capital gains on property, shares or other products may appear to be relatively simple. However, calculating the capital gains on a forestry investment is virtually impossible.
Over a 25 to 30-year rotation the inflation adjusted price per cubic metre may fall, but because of forest growth, the return will actually increase. It is very difficult − almost impossible − to determine what proportion of the increase in value can be attributed to forest growth and which should be attributed to a change in the price per cubic metre.
How are any capital gains to be assessed? Not all plantations have similar costs. A farmer may plant and tend a plantation on their farm, but keep no record of when or how much was actually spent. On the other hand, a forestry company may have maintained good records of actual costs but have no record of overhead costs.Will the basis of any calculations be the same? If it is not, then any calculation must be inequitable. In addition, over what period is the capital gain to be assessed?
In 1964 I was a forestry university student in England. My degree included an extra course in forest taxation. The then UK Labour Government was proposing to introduce a capital gains tax. Before details of the tax were announced we had a discussion in our class on how a capital gains tax might be applied to forestry.We conclude there was no way the tax could be applied fairly.When details of the capital gains tax were finally announced, forestry was excluded.
In the late 1980s our finance minister, Roger Douglas, seemed convinced that forestry investments were being inadequately taxed. As I understood his intentions, he was proposing to tax forest owners yearly on how much their forest had increased in value over the last year.This ignored the fact that forest owners may have no plantation income until eventual harvest.
In discussion with him I pointed that under such a tax scheme no one would invest in New Zealand plantations. Investors would move to countries such as in South America. His response, as I recall, was that his proposal was logical and let investors go to South America. Fortunately, Douglas’s forest tax scheme was never implemented.
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