Investors in these managed investment schemes (MIS) claimed an immediate tax deduction equal to the value of their stake under rules that required them to hold onto their stake in the projects for at least four years.

But the collapse of Timbercorp and Great Southern, the two largest investment companies, means many forestry projects might be liquidated - jeopardising the tax breaks claimed by investors, many of whom might not see any other return on their money.

But Assistant Treasurer Nick Sherry said the government would change the tax law so that investors in failed projects would be protected from unintended tax bills arising from events outside their control, The Australian Financial Review reports today.

"Under the current law, investors in forestry MIS managed by Timbercorp and Great Southern may have previous years' deductions clawed back because they haven't held their interests for four years," Senator Sherry said yesterday.