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. Investors may or may not have seen any cash yet from this income. Broadly speaking, taxable income is calculated on investment income (e.g. log sales) less expenses in the relevant tax year (ending 31 March).
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. Income from one tax year can be paid in another, i.e. not all harvest income is paid (distributions) in the same year as the taxable income.
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.
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. 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 “Distributions”.
New Zealand’s Income Tax Act 2007 requires us to claim depreciation on capital roading (not on road maintenance). As a result, the taxable income can be higher than the cashflow available for distribution; and, the taxable income to declare will then exceed the distributed income. See also “How do roading expenses impact my taxable income?”