Income earned by the limited partnership in a tax year, such as from harvest, is taxable at the investor level. This taxable income (or loss) is noted on your annual Tax Details Statement. Broadly speaking, taxable income is calculated on investment income (e.g. log sales) less expenses (e.g. road building, replanting) for the year. Investors may or may not have seen any cash yet from this income.
Distributions paid to investors is simply the surplus cash available. What is available depends on the timing of payment for logs we’ve supplied, and what expenses need to be met throughout harvest. Road building is classified as a capital expense that we must depreciate. This gives rise to a difference between the cash available to distribute and the accounting position. Learn more: “How do roading expenses impact my taxable income?”
Throughout the harvest programme, a small amount of taxable income is retained to meet expenses, such as to fund the construction of roads, replant harvested areas or meet general scheme expenses. It is more efficient for us to retain income rather than make further calls on investors. Timing is also a consideration. Income from one tax year can be paid in another, i.e. not all harvest income is paid (distributed) in the same year as the taxable income. Most retained income will be returned to investors, either through the depreciation charge in the investment’s financial statements or through the sale of the replanted trees at the conclusion of harvest.
Our aim is to pay surplus funds to investors as soon as possible, as this is your money and we do not want to hold on to investors funds any longer than necessary. See also: “Distribution”.
It is important that you declare the taxable income, not the distributed income, in your tax return. Declaring only distributed income may see you incur penalties from New Zealand Inland Revenue for under-declaring forestry income. Notes are circulated with the Tax Details Statement which can be shared with your accountant or tax advisor.