Product Ruling PR 2024/9
Date of effect: 12 June 2024

What this ruling is about: 1. This Ruling sets out the income tax consequences for entities that participate as a customer in the End of Season Scheme (EOSS) offered by Summit Rural (WA) Pty Limited (Summit). 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1936, unless otherwise indicated. 3. This Ruling does not address: Who this Ruling applies to 4. This Ruling applies to you if you: 5. This Ruling does not apply to you if you: Requirements of the Superannuation Industry (Supervision) Act 1993 6. This Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993. The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Ruling as to whether investment in this scheme may contravene the provisions of the Superannuation Industry (Supervision) Act 1993. 7. This Ruling applies from 12 June 2024, the date it was published, to a customer specified in paragraph 4 of this Ruling that enters into the scheme from 12 June 2024 until 30 June 2026. 8. However, the Ruling only applies and may be relied on to the extent that there is no change in the scheme or in the customer's involvement in the scheme. If the scheme carried out is materially different from the scheme described at paragraphs 11 to 15 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 9. Subject to paragraph 3 of this Ruling and the assumptions in paragraph 10 of this Ruling: Assumptions 10. This Ruling is made on the basis of the following necessary assumptions: 11. The scheme is identified and described in the following: Note: Certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under freedom of information legislation. 12. For the purposes of describing the scheme, there are no other agreements (whether formal or informal, and whether or not legally enforceable) which a customer, or any associate of a customer, will be a party to which are a part of the scheme. Overview of scheme 13. The terms and conditions of the EOSS constitute an agreement between a customer of Summit and Summit. The EOSS offers 2 options which are open for acceptance prior to 30 June in the year of payment and are designed to assist customer cash flow management by enabling them to pay for fertiliser during major agricultural sale periods, subject to available Summit stock. The offer is only available in respect of fertiliser acquired for use by the customer who is not a reseller or member of a buying group. 14. Pursuant to Offer 1 (Pay Now Collect Later) in the terms and conditions of the EOSS: 15. Pursuant to Offer 2 (Pre-Pay Now Nominate Later) in the terms and conditions of the EOSS: Commissioner of Taxation 12 June 2024 Section 8-1 of the ITAA 1997  deductibility of the prepayment 16. A loss or outgoing is deductible under section 8-1 of the ITAA 1997 if it is necessarily incurred in carrying on a business for the purpose of gaining or producing a taxpayer's assessable income. The expenditure must be part of the cost of trading operations and must not be of a capital, private or domestic nature. 17. An outgoing incurred by a business will be 'necessarily incurred' where, in the circumstances, it is reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business being carried on for the purpose of earning assessable income (see Magna Alloys & Research Pty Ltd v. Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180). 18. Upon entry into the EOSS a prepayment under Offer 1 or the prepaid funds under Offer 2, as elected by the customer, are both immediately due and non-refundable such that the customer becomes definitively committed to, and incurs, the amount paid. Where the customer prepays a deposit under Offer 1, the outstanding balance is due and payable no later than 25 January in the year after the deposit payment, or on collection if prior to this date. In these circumstances, the full amount of the expenditure is incurred by the customer at the time of the deposit on the basis the outstanding amount is presently due and payable and the customer is definitively committed to the obligation at that time. 19. As the relevant payment is incurred for the purchase of fertiliser to be used in the customer's primary production business, it constitutes expenditure which is clearly appropriate from the point of view of the pursuit of the business ends of the customer's business and is therefore 'necessarily incurred' in the carrying on of that business. 20. The prepayment under Offer 1 or the prepaid funds under Offer 2 necessarily incurred by the customer to purchase fertiliser in the course of carrying on its business is not of a capital, private or domestic nature. The deduction for the payment is allowable under section 8-1 of the ITAA 1997 in the income year it is necessarily incurred. Section 82KZM  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure 21. Subject to paragraph 22 of this Ruling, section 82KZM operates to spread over more than one income year a deduction which, apart from that section, would be allowable under section 8-1 of the ITAA 1997 for the year of income in which the prepaid expenditure (other than excluded expenditure as defined in subsection 82KZL(1)) is incurred under an agreement by a taxpayer that is either: 22. Section 82KZM applies if the eligible service period for the expenditure is longer than 12 months, or the eligible service period for the expenditure is 12 months or shorter but ends after the last day of the year of income after the one in which the expenditure was incurred. 23. In relation to the prepayment incurred by the customer under Offer 1 in the terms and conditions of the EOSS, the eligible service period for the purpose of section 82KZM is the period to which the payment relates. That period is: 24. In relation to the prepaid funds incurred by the customer under Offer 2 in the terms and conditions of the EOSS, the eligible service period for the purpose of section 82KZM is the period to which the prepaid funds relate. That period is: 25. The eligible service period in relation to the deductible prepayment under Offer 1 in the terms and conditions of the EOSS or the deductible prepaid funds under Offer 2 in the terms and conditions of the EOSS is no longer than 12 months. As it is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM will have no application to customers that (as assumed at paragraph 10 of this Ruling) are a small business entity (or an entity covered by subsection 82KZM(1A)) for the year of income and have not chosen to apply section 82KZMD to the expenditure. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Class of entities or scheme: 13. The terms and conditions of the EOSS constitute an agreement between a customer of Summit and Summit. The EOSS offers 2 options which are open for acceptance prior to 30 June in the year of payment and are designed to assist customer cash flow management by enabling them to pay for fertiliser during major agricultural sale periods, subject to available Summit stock. The offer is only available in respect of fertiliser acquired for use by the customer who is not a reseller or member of a buying group. 14. Pursuant to Offer 1 (Pay Now Collect Later) in the terms and conditions of the EOSS: 15. Pursuant to Offer 2 (Pre-Pay Now Nominate Later) in the terms and conditions of the EOSS: Commissioner of Taxation 12 June 2024 | Section 8-1 of the ITAA 1997  deductibility of the prepayment: 16. A loss or outgoing is deductible under section 8-1 of the ITAA 1997 if it is necessarily incurred in carrying on a business for the purpose of gaining or producing a taxpayer's assessable income. The expenditure must be part of the cost of trading operations and must not be of a capital, private or domestic nature. 17. An outgoing incurred by a business will be 'necessarily incurred' where, in the circumstances, it is reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business being carried on for the purpose of earning assessable income (see Magna Alloys & Research Pty Ltd v. Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180). 18. Upon entry into the EOSS a prepayment under Offer 1 or the prepaid funds under Offer 2, as elected by the customer, are both immediately due and non-refundable such that the customer becomes definitively committed to, and incurs, the amount paid. Where the customer prepays a deposit under Offer 1, the outstanding balance is due and payable no later than 25 January in the year after the deposit payment, or on collection if prior to this date. In these circumstances, the full amount of the expenditure is incurred by the customer at the time of the deposit on the basis the outstanding amount is presently due and payable and the customer is definitively committed to the obligation at that time. 19. As the relevant payment is incurred for the purchase of fertiliser to be used in the customer's primary production business, it constitutes expenditure which is clearly appropriate from the point of view of the pursuit of the business ends of the customer's business and is therefore 'necessarily incurred' in the carrying on of that business. 20. The prepayment under Offer 1 or the prepaid funds under Offer 2 necessarily incurred by the customer to purchase fertiliser in the course of carrying on its business is not of a capital, private or domestic nature. The deduction for the payment is allowable under section 8-1 of the ITAA 1997 in the income year it is necessarily incurred. | Section 82KZM  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 21. Subject to paragraph 22 of this Ruling, section 82KZM operates to spread over more than one income year a deduction which, apart from that section, would be allowable under section 8-1 of the ITAA 1997 for the year of income in which the prepaid expenditure (other than excluded expenditure as defined in subsection 82KZL(1)) is incurred under an agreement by a taxpayer that is either: 22. Section 82KZM applies if the eligible service period for the expenditure is longer than 12 months, or the eligible service period for the expenditure is 12 months or shorter but ends after the last day of the year of income after the one in which the expenditure was incurred. 23. In relation to the prepayment incurred by the customer under Offer 1 in the terms and conditions of the EOSS, the eligible service period for the purpose of section 82KZM is the period to which the payment relates. That period is: 24. In relation to the prepaid funds incurred by the customer under Offer 2 in the terms and conditions of the EOSS, the eligible service period for the purpose of section 82KZM is the period to which the prepaid funds relate. That period is: 25. The eligible service period in relation to the deductible prepayment under Offer 1 in the terms and conditions of the EOSS or the deductible prepaid funds under Offer 2 in the terms and conditions of the EOSS is no longer than 12 months. As it is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM will have no application to customers that (as assumed at paragraph 10 of this Ruling) are a small business entity (or an entity covered by subsection 82KZM(1A)) for the year of income and have not chosen to apply section 82KZMD to the expenditure. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

Ruling: 1. This Ruling sets out the income tax consequences for entities that participate as a customer in the End of Season Scheme (EOSS) offered by Summit Rural (WA) Pty Limited (Summit). 2. All legislative references in this Ruling are to the Income Tax Assessment Act 1936, unless otherwise indicated. 3. This Ruling does not address: | Who this Ruling applies to: 4. This Ruling applies to you if you: 5. This Ruling does not apply to you if you: | Requirements of the Superannuation Industry (Supervision) Act 1993: 6. This Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993. The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Ruling as to whether investment in this scheme may contravene the provisions of the Superannuation Industry (Supervision) Act 1993. 7. This Ruling applies from 12 June 2024, the date it was published, to a customer specified in paragraph 4 of this Ruling that enters into the scheme from 12 June 2024 until 30 June 2026. 8. However, the Ruling only applies and may be relied on to the extent that there is no change in the scheme or in the customer's involvement in the scheme. If the scheme carried out is materially different from the scheme described at paragraphs 11 to 15 of this Ruling, this Ruling cannot be relied upon and may be withdrawn or modified. 9. Subject to paragraph 3 of this Ruling and the assumptions in paragraph 10 of this Ruling: | Assumptions: 10. This Ruling is made on the basis of the following necessary assumptions: 11. The scheme is identified and described in the following: Note: Certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under freedom of information legislation. 12. For the purposes of describing the scheme, there are no other agreements (whether formal or informal, and whether or not legally enforceable) which a customer, or any associate of a customer, will be a party to which are a part of the scheme. | Overview of scheme: 13. The terms and conditions of the EOSS constitute an agreement between a customer of Summit and Summit. The EOSS offers 2 options which are open for acceptance prior to 30 June in the year of payment and are designed to assist customer cash flow management by enabling them to pay for fertiliser during major agricultural sale periods, subject to available Summit stock. The offer is only available in respect of fertiliser acquired for use by the customer who is not a reseller or member of a buying group. 14. Pursuant to Offer 1 (Pay Now Collect Later) in the terms and conditions of the EOSS: 15. Pursuant to Offer 2 (Pre-Pay Now Nominate Later) in the terms and conditions of the EOSS: Commissioner of Taxation 12 June 2024 | Section 8-1 of the ITAA 1997  deductibility of the prepayment: 16. A loss or outgoing is deductible under section 8-1 of the ITAA 1997 if it is necessarily incurred in carrying on a business for the purpose of gaining or producing a taxpayer's assessable income. The expenditure must be part of the cost of trading operations and must not be of a capital, private or domestic nature. 17. An outgoing incurred by a business will be 'necessarily incurred' where, in the circumstances, it is reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business being carried on for the purpose of earning assessable income (see Magna Alloys & Research Pty Ltd v. Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180). 18. Upon entry into the EOSS a prepayment under Offer 1 or the prepaid funds under Offer 2, as elected by the customer, are both immediately due and non-refundable such that the customer becomes definitively committed to, and incurs, the amount paid. Where the customer prepays a deposit under Offer 1, the outstanding balance is due and payable no later than 25 January in the year after the deposit payment, or on collection if prior to this date. In these circumstances, the full amount of the expenditure is incurred by the customer at the time of the deposit on the basis the outstanding amount is presently due and payable and the customer is definitively committed to the obligation at that time. 19. As the relevant payment is incurred for the purchase of fertiliser to be used in the customer's primary production business, it constitutes expenditure which is clearly appropriate from the point of view of the pursuit of the business ends of the customer's business and is therefore 'necessarily incurred' in the carrying on of that business. 20. The prepayment under Offer 1 or the prepaid funds under Offer 2 necessarily incurred by the customer to purchase fertiliser in the course of carrying on its business is not of a capital, private or domestic nature. The deduction for the payment is allowable under section 8-1 of the ITAA 1997 in the income year it is necessarily incurred. | Section 82KZM  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 21. Subject to paragraph 22 of this Ruling, section 82KZM operates to spread over more than one income year a deduction which, apart from that section, would be allowable under section 8-1 of the ITAA 1997 for the year of income in which the prepaid expenditure (other than excluded expenditure as defined in subsection 82KZL(1)) is incurred under an agreement by a taxpayer that is either: 22. Section 82KZM applies if the eligible service period for the expenditure is longer than 12 months, or the eligible service period for the expenditure is 12 months or shorter but ends after the last day of the year of income after the one in which the expenditure was incurred. 23. In relation to the prepayment incurred by the customer under Offer 1 in the terms and conditions of the EOSS, the eligible service period for the purpose of section 82KZM is the period to which the payment relates. That period is: 24. In relation to the prepaid funds incurred by the customer under Offer 2 in the terms and conditions of the EOSS, the eligible service period for the purpose of section 82KZM is the period to which the prepaid funds relate. That period is: 25. The eligible service period in relation to the deductible prepayment under Offer 1 in the terms and conditions of the EOSS or the deductible prepaid funds under Offer 2 in the terms and conditions of the EOSS is no longer than 12 months. As it is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM will have no application to customers that (as assumed at paragraph 10 of this Ruling) are a small business entity (or an entity covered by subsection 82KZM(1A)) for the year of income and have not chosen to apply section 82KZMD to the expenditure. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).


Appendix: Section 8-1 of the ITAA 1997  deductibility of the prepayment: 16. A loss or outgoing is deductible under section 8-1 of the ITAA 1997 if it is necessarily incurred in carrying on a business for the purpose of gaining or producing a taxpayer's assessable income. The expenditure must be part of the cost of trading operations and must not be of a capital, private or domestic nature. 17. An outgoing incurred by a business will be 'necessarily incurred' where, in the circumstances, it is reasonably capable of being seen as desirable or appropriate from the point of view of the pursuit of the business ends of the business being carried on for the purpose of earning assessable income (see Magna Alloys & Research Pty Ltd v. Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180). 18. Upon entry into the EOSS a prepayment under Offer 1 or the prepaid funds under Offer 2, as elected by the customer, are both immediately due and non-refundable such that the customer becomes definitively committed to, and incurs, the amount paid. Where the customer prepays a deposit under Offer 1, the outstanding balance is due and payable no later than 25 January in the year after the deposit payment, or on collection if prior to this date. In these circumstances, the full amount of the expenditure is incurred by the customer at the time of the deposit on the basis the outstanding amount is presently due and payable and the customer is definitively committed to the obligation at that time. 19. As the relevant payment is incurred for the purchase of fertiliser to be used in the customer's primary production business, it constitutes expenditure which is clearly appropriate from the point of view of the pursuit of the business ends of the customer's business and is therefore 'necessarily incurred' in the carrying on of that business. 20. The prepayment under Offer 1 or the prepaid funds under Offer 2 necessarily incurred by the customer to purchase fertiliser in the course of carrying on its business is not of a capital, private or domestic nature. The deduction for the payment is allowable under section 8-1 of the ITAA 1997 in the income year it is necessarily incurred. | Section 82KZM  prepaid expenditure incurred by certain small and medium business entities and individuals incurring non-business expenditure: 21. Subject to paragraph 22 of this Ruling, section 82KZM operates to spread over more than one income year a deduction which, apart from that section, would be allowable under section 8-1 of the ITAA 1997 for the year of income in which the prepaid expenditure (other than excluded expenditure as defined in subsection 82KZL(1)) is incurred under an agreement by a taxpayer that is either: 22. Section 82KZM applies if the eligible service period for the expenditure is longer than 12 months, or the eligible service period for the expenditure is 12 months or shorter but ends after the last day of the year of income after the one in which the expenditure was incurred. 23. In relation to the prepayment incurred by the customer under Offer 1 in the terms and conditions of the EOSS, the eligible service period for the purpose of section 82KZM is the period to which the payment relates. That period is: 24. In relation to the prepaid funds incurred by the customer under Offer 2 in the terms and conditions of the EOSS, the eligible service period for the purpose of section 82KZM is the period to which the prepaid funds relate. That period is: 25. The eligible service period in relation to the deductible prepayment under Offer 1 in the terms and conditions of the EOSS or the deductible prepaid funds under Offer 2 in the terms and conditions of the EOSS is no longer than 12 months. As it is not more than 12 months and does not end after the last day of the year of income after the one in which the expenditure was incurred, section 82KZM will have no application to customers that (as assumed at paragraph 10 of this Ruling) are a small business entity (or an entity covered by subsection 82KZM(1A)) for the year of income and have not chosen to apply section 82KZMD to the expenditure. © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).


What this Ruling is about | If this Ruling applies to you, and you correctly rely on it, we will apply the law to you in the way set out in this Ruling. That is, you will not pay any more tax or penalties or interest in respect of the matters covered by this Ruling. | This Ruling has been given on the basis that the entity who applied for the Ruling, and their associates, will abide by strict terms of use. Any failure to comply with the terms of use may lead to the withdrawal of this Ruling. | Potential participants must form their own view about the commercial and financial viability of the product. The Commissioner recommends a financial (or other) adviser be consulted for such information.


Legislative references: ITAA 1936 Pt III Div 3 Subdiv H ITAA 1936 82KZL(1) ITAA 1936 82KZM ITAA 1936 82KZM(1A) ITAA 1936 82KZMD ITAA 1936 Part IVA ITAA 1997 8-1 ITAA 1997 27-5 ITAA 1997 Div 230 ITAA 1997 328-110 SISA 1993
Case references: Magna Alloys & Research Pty Ltd v. Commissioner of Taxation of the Commonwealth of Australia [1980] FCA 180 80 ATC 4542 11 ATR 276 33 ALR 213 49 FLR 183