Building harvest infrastructure – roads and landings (log processing areas) – is a significant but necessary expense required to access, harvest and remove the valuable timber in your forest.
Roads are built throughout the harvest programme, but the primary outlay occurs during the early stages to establish the network, with maintenance generally occurring as harvest progresses. Roading expenses are paid in full to the contractor at the time of construction. But because it is not immediately deductible in full, the available cashflow for distribution to investors is therefore reduced.
Roading is generally a capital cost. New Zealand’s Income Tax Act 2007 requires us to claim depreciation on capital roading (not on road maintenance) in the investment’s financial statements at a rate of 20-25% diminishing value (DV). (Maintenance is recovered in full when it is incurred.) Because of this accounting treatment, there will be a difference between what the investment’s taxable income is and what is available for distribution to investors.