Product Ruling PR 2006/25
Status: withdrawn
Date of effect: 29 March 2006

What this ruling is about: 1. This Ruling sets out the Commissioner's opinion on the way in which the 'taxation provision(s)' identified below apply to the defined class of entities, who take part in the scheme to which this Ruling relates. In this Ruling this scheme is referred to as the 'RFM Almond Fund 2006 - Early Growers Pre 16 June 2006' or simply as 'the Project'. Relevant taxation provision(s) 2. The tax laws dealt with in this Ruling are: All legislative references in this Ruling are to the ITAA 1997 unless otherwise indicated. Goods and Services Tax 3. All fees and expenditure referred to in this Ruling include the Goods and Services Tax (GST) where applicable. In order for an entity (referred to in this Ruling as a 'Grower') to be entitled to claim input tax credits for the GST included in its expenditure, it must be registered or required to be registered for GST and hold a valid tax invoice. Changes in the Law 4. Although this Ruling deals with the laws enacted at the time it was issued, later amendments may impact on this Ruling. Any such changes will take precedence over the application of this Ruling and, to that extent, this Ruling will be superseded. 5. Taxpayers who are considering participating in the Project are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued. Note to promoters and advisers 6. Product Rulings were introduced for the purpose of providing certainty about tax consequences for participants in projects such as this. In keeping with that intention the Tax Office suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Ruling is issued. Class of entities 7. The class of entities to whom this Ruling applies is the entities more specifically identified in the Ruling part of this Product Ruling and who enter into the scheme specified below on or after the date this Ruling is made. They will have a purpose of staying in the scheme until it is completed (that is, being a party to the relevant agreements until their term expires), and deriving assessable income from this involvement as set out in the description of the arrangement. In this Ruling, these entities are referred to as Growers. 8. The class of entities to whom this Ruling applies does not include: Qualifications 9. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 15 to 53. 10. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 11. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to:

Class of entities or scheme: 7. The class of entities to whom this Ruling applies is the entities more specifically identified in the Ruling part of this Product Ruling and who enter into the scheme specified below on or after the date this Ruling is made. They will have a purpose of staying in the scheme until it is completed (that is, being a party to the relevant agreements until their term expires), and deriving assessable income from this involvement as set out in the description of the arrangement. In this Ruling, these entities are referred to as Growers. 8. The class of entities to whom this Ruling applies does not include: | Qualifications: 9. The class of entities defined in this Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 15 to 53. 10. If the scheme actually carried out is materially different from the scheme that is described in this Ruling, then: 11. This work is copyright. Apart from any use as permitted under the Copyright Act 1968 , no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to: 12. This Ruling applies prospectively from 29 March 2006, the date this Ruling is made. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). 13. If a taxpayer has a more favourable private ruling (which is legally binding), the taxpayer can rely on the private ruling if the income year to which the private ruling relates has ended, or has commenced but not yet ended. However, if the arrangement covered by the private ruling has not commenced and the income year to which it relates has not yet commenced, this Ruling applies to the taxpayer to the extent of the inconsistency only (see Taxation Determination TD 93/34). 14. This Product Ruling is withdrawn and ceases to have effect after 30 June 2010. The Ruling continues to apply, in respect of the tax laws ruled upon, to all entities within the specified class who enter into the arrangement specified below. Thus, the Ruling continues to apply to those entities, even following its withdrawal, who entered into the specified scheme prior to withdrawal of the Ruling. This is subject to there being no change in the scheme or in the entity's involvement in the scheme. 15. The scheme that is the subject of this Ruling is specified below. This scheme incorporates the following documents: Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation. 16. The documents highlighted are those that Growers may enter into. For the purposes of describing the arrangement to which this Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which a Grower, or any associate of a Grower, will be a party to, which are a part of the arrangement. The effect of these agreements is summarised as follows. 17. All Australian Securities and Investment Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. The effect of these agreements is summarised as follows. | Overview: 18. The main features of the RFM Almond 2006 Project are as follows: 19. The Project has been registered as a Managed Investment Scheme under the Corporations Act 2001. Rural Funds Management Limited ('RFM') has been issued with an Australian Financial Services Licence and will be the Responsible Entity for the Project. An offer to participate in the Project will be made through a Product Disclosure Statement ('PDS'). The offer under the PDS is for 575 hectares in the Project, with capacity for oversubscription. Participants will be invited to subscribe for at least one Grove comprising of 0.25 hectares per Grove. 20. Applications to participate in the Project must be made on the application form shown in the PDS. RFM will issue Grove licences when a minimum subscription of 400 groves has been received. A Custodian will be appointed under the Custody Agreement to protect the interests of the Growers in their dealings with RFM. 21. For Growers, who are accepted as Growers in the Project, RFM will allocate Groves, place their details in a Register and enter into Agreements in relation to the Groves allocated to the Grower with RFM and its associates. 22. Under the Product Disclosure Statement offer, Growers can enter the Project during the period from the date of this Ruling to 15 June 2006 or during the period 1 July 2006 to 15 June 2007. No applications will be accepted into the Project between 16 June 2006 and 30 June 2006 and after 15 June 2007. This Product Ruling applies to Growers who enter the Project during the period 1 July 2006 and 15 June 2007. Growers accepted on or before 15 June 2006 may be covered by Product Ruling PR 2006/24 . 23. The Project land on which the Participant Growers will be growing and cultivating Almond trees for the production of Almonds is on a property known as Brooklyn which is situated near Hillston, in New South Wales. RFM will enter into a Lease Agreement with the Land Owner for the Land and Water Licences. 24. RFM will grant Growers a Licence to Occupy to use and occupy one or more identifiable Groves of 0.25 hectares each, for the term of the Project. 25. A Grower will also enter into a Farm Management Agreement with RFM to cultivate and maintain the Almond Trees and be responsible for harvesting, the processing of and selling the Grower's Almonds. | Constitution: 26. The RFM Almond Fund 2006 Constitution establishes the Project and operates as a deed binding on the Project's Growers and the Manager. Upon entering into a Farm Management Agreement, Growers become bound by the provision of the RFM Almond Fund 2006 Constitution. The Manager, Rural Fund Management Ltd, is the Responsible Entity for the Project and will have the primary responsibility for managing the project, ensuring compliance with the Corporations Law, the Scheme Constitution and the Farm Management Agreement. 27. In summary, the Constitution sets out procedures for dealing with: | Compliance Plan: 28. As required by the Corporations Act 2001 , a Compliance Plan has been adopted by RFM for the Project. The purpose of the Compliance Plan is to ensure that RFM manages the Project in accordance with its obligations and responsibilities contained in the Constitution and that the interests of Growers are protected. | Head Lease Agreement: 29. The Project will be conducted on land that is part of a property called Brooklyn. Initially the land for the Project will be leased by Lachlan Farming Limited (Lessor) the owner of the land to Australian Executor Trustees Limited as Custodian of RFM Riverbank (Lessee). In addition, the Lease gives RFM Riverbank the right to use a portion of Lachlan Farming Limited's bore water allocations for the term of the Lease. 30. When certain conditions attached to the contract for sale of the land and water are met Australian Executor Trustees Limited, as custodian of RFM Riverbank will acquire the land and water and will be granted an Easement by the Vendor over bores and delivery infrastructure. The Vendor and the Purchaser as part of the contract for sale of the land will also enter into a Joint Water Authority to assure each party has sufficient access to water infrastructure to enable their farming operations to continue. 31. Once the conditions have been met and the land has been transferred to Australian Executors Trustees Limited as custodian of RFM Riverbank the lease between Lachlan Farming Ltd and Australian Executor Trustees Ltd as custodian of RFM Riverbank will be extinguished. | Sublease Agreement: 32. Australian Executor Trustee Limited as custodian of RFM Riverbank (Lessor) will lease the land to Rural Funds Management Ltd (Lessee) as Responsible Entity of the RFM Almond Fund 2006. 33. The Lessor under the Lease Agreement must perform at its own cost the following services: 34. The Lease will be executed once the Almond Fund reaches minimum subscription and shall continue until 30 June 2026, a term of approximately 20 years. 35. The Lease gives RFM, as Responsible Entity of the Almond Fund, the right to occupy and cultivate the land, grants the full benefit of all water entitlements, and confers the full benefit of any infrastructure on the land. It also imposes the obligation on the Responsible Entity to maintain the land in a good and proper state, and to make annual rent payments to the Lessor. The approval of the Lessor is not required for the Responsible Entity to grant a licence over part of the land for the purpose of growing almonds. | Licence to Occupy Agreement: 36. Each Grower enters into a Licence to Occupy Agreement ('the Agreement') with RFM who is the Responsible Entity and the Licensor of the Land. The Licence to Occupy Agreement between the Grower and RFM is until 30 June 2026 (clause 3.3). Under the Agreement, RFM grants the Grower a licence to occupy a Grove on the Land for the purpose of conducting the Grower's Business (clause 5.1). The Growers Business is defined as cultivating, harvesting, marketing and sale of almonds. 37. Each Grove is 0.25 hectare in size and will have 70 almond trees planted on it (clause 3 and Schedule 1). Each Grove will constitute a distinct area of Land which will be identified by the licensor on a Plan maintained for that purpose (clauses 4.2 and 4.3). 38. The licence also provides the Grower with a right to use any dam or irrigation system on the Land, any road or track on the Land for the purpose of access to the Grove and any other agricultural infrastructure located on the land (clause 3.4). 39. A Grower who enters in the 2006-07 income year will be required to pay an annual Licence Fee for each year of the Agreement commencing in the 2006-07 income year. The Licence Fee for the 2006-07 income year and 2007-08 income year is incorporated in the Management Fee (clause 8). From the 2008-09 income year onwards, the annual fee will be the Grower's proportionate share of the overall Lease Payment payable by RFM to the Landowner in accordance with the formula in clause 8.3. 40. In summary, the Licence to Occupy also sets out provisions relating to: | Farm Management Agreement: 41. Growers contract under the Farm Management Agreement with RFM the Responsible Entity to carry out management services in relation to the conduct of the Grower's Business on the Land consistent with responsible agricultural practice. 42. The Farm Management Agreement will terminate on 30 June 2026 being the time of termination of the Licence to Occupy. 43. Throughout the term of the Farm Management Agreement, the Responsible Entity agrees to do all things necessary to manage the Grower's Grove. These duties include, but are not limited to: 44. The Manager will pool for sale Almonds produced from the Grower's Business with that of each other Grower and market and sell the Almonds. The proceeds of the sale of all almonds will be paid into the RFM Almond Fund 2006 Scheme Accounts by the Manager. The Sale Proceeds will be distributed to the Growers in accordance with the terms of the Constitution. In certain circumstances if the Growers contribution to the Almond pool for that particular harvest is reduced the Grower's Sale Proceeds may be reduced. 45. The Manager will establish and maintain a Grower's Account for each Grower, which will specify the amount of Sale Proceeds attributable to that Grower, and the amount of fees and costs deducted from the Grower's account in accordance with the terms of this Agreement. | Crop Supply Agreement: 46. RFM the Responsible Entity for the Project has entered into a 20 year agreement with Almondco Australia Limited ('Almondco') for the marketing and sale of Almonds supplied by RFM. Subject to the almonds produced being of a suitable condition, Almondco has agreed to market and sell all available almonds supplied by RFM. | Grower Fees: 47. Growers will pay the annual management fees and charges per Grove, set out in clause 12 and Schedule 2 of the Farm Management Agreement, and the annual licence fees, set out in clause 8 of the Licence to Occupy Agreement. These fees are as follows: | Units in RFM Riverbank: 48. A Grower may also purchase units in RFM Riverbank (Riverbank), which will acquire and hold the land, water, almond trees, and irrigation infrastructure used by Growers in their business. The Constitution of RFM Riverbank establishes the Trust and operates as a deed under which the Manager holds assets on trust for the unit holders. The purchase of units in Riverbank by Growers who enter the RFM Almond Fund 2006 is optional. | Finance: 49. Growers can fund their involvement in RFM Almond Fund 2006 themselves, borrow from Gateway Momentum Funding Trust No. 1 (Momentum) a financier RFM has an arrangement with to provide finance or borrow from an independent lender. 50. Gateway Momentum Funding Trust No. 1 (Momentum) provides finance to Growers under the following finance arrangement. Four types of loans will be offered to potential participants in the project. Four loan terms available are: 51. A Loan Establishment Fee of $250 plus stamp duty will comprise part of the total loan amount. 52. Growers cannot rely on this Product Ruling if a different finance arrangement, to that described in this Ruling is entered into with Gateway Momentum Funding Trust No. 1 (Momentum) or if application monies otherwise remain unpaid by 30 June in the year of application. Where an application is accepted subject to finance approval by any lending institution, Growers cannot rely on this Ruling if written evidence of that approval has not been given to the Responsible Entity by 30 June. 53. This Ruling does not apply if the finance arrangement entered into by the Grower includes or has any of the following features: | Application of this Ruling: 54. Subject to paragraph 8, this Ruling applies only to Growers who are accepted to participate in the Project during the period 1 July 2006 and on or before 15 June 2007 and who have executed a Farm Management Agreement and a Licence to Occupy Agreement on or before that date. The Grower's participation in the Project must constitute the carrying on of a business of primary production. | Minimum subscription: 55. A Grower is not eligible to claim any tax deductions until the Grower's application to enter the Project is accepted and the Project has commenced. Under the terms of the Product Disclosure Statement, a Grower's application will not be accepted and the Project will not proceed until the minimum subscription of 400 interests is achieved. | Division 328: 56. For a Grower participating in the Project, the recognition of income and the timing of tax deductions is different depending on whether the Grower who was an 'STS taxpayer' prior to 1 July 2005 continues to use the cash accounting method (called the 'STS accounting method') - see sections 328-120 and 328-125 of the Income Tax (Transitional Provisions) Act 1997 . 57. For such Growers, a reference in this Ruling to an amount being deductible when 'incurred' will mean that the amount is deductible when paid and a reference to an amount being included in assessable income when 'derived' will mean that the amount is included in assessable income when received. | Qualification: 58. This Product Ruling assumes that a Grower who is an 'STS taxpayer' is so for the income year in which their participation in the Project commences. A Grower may become an 'STS taxpayer' at a later point in time. Also, a Grower who is an 'STS taxpayer' may choose to stop being an 'STS taxpayer', or may cease to be eligible to be an 'STS taxpayer', during the term of the Project. These are contingencies relating to the circumstances of individual Growers that cannot be accommodated in this Ruling. Such Growers can ask for a private ruling on how the taxation legislation applies to them. | Subdivision 61-J: 59. For the first income year starting on or after 1 July 2005, Subdivision 61-J provides for a tax offset of up to 25% of income tax liability related to the business income of a business in the STS with annual group turnover of less than $75,000. Entitlement to the offset varies depending on the type of entity and is therefore outside the scope of this Ruling. | Section 6-5: 60. That part of the gross sales proceeds from the Project attributable to the Grower's produce, less any GST payable on those proceeds (section 17-5), will be assessable income of the Grower under section 6-5. 61. The Grower recognises ordinary income from carrying on the business of horticulture at the time that income is derived. | Section 70-35: 62. A Grower who is not an 'STS taxpayer' may, in some years, hold almonds that will constitute trading stock on hand. Where, in an income year, the value of trading stock on hand at the end of an income year exceeds the value of trading stock on hand at the start of an income year a Grower must include the amount of that excess in assessable income. 63. Alternatively , where the value of trading stock on hand at the start of an income year exceeds the value of trading stock on hand at the end of an income year, a Grower may claim the amount of that excess as an allowable deduction. | Section 328-285: 64. A Grower who is an 'STS taxpayer' may, in some years, hold almonds that will constitute trading stock on hand. Where, for such a Grower, for an income year, the difference between the value of all their trading stock at the start and a reasonable estimate of it at the end, is less than $5,000, they do not have to account for that difference under the ordinary trading stock rules in Division 70 (subsection 328-285(1)). 65. Alternatively, a Grower who is an 'STS taxpayer' may instead choose to account for trading stock in an income year under the provisions of Division 70 (subsection 328-285(2)). | Sections 8-1 & 25-25: 66. A Grower may claim tax deductions under section 8-1 of the ITAA 1997, for the revenue expenses in the Table below. | Division 40: 67. Each Grower will also be entitled to tax deductions relating to the Almond Trees planted on the Grove. Notes: | Units in RFM Riverbank: 68. The units in Riverbank are CGT Assets (section 108-5) and the amounts payable by the investor are outgoings of a capital nature and not allowable as a deduction. 69. The amount paid for each unit will represent the first element of the cost base of the unit (subsection 110-25(2)). Any disposal of the units by a unitholder will be a CGT event and may give rise to a capital gain or loss. 70. Income distributions by RFM Riverbank are included in the assessable income of a Grower who is a Unit holder, in accordance with Division 6 of Part III of the ITAA 1936. 71. The deductibility of expenses which may be incurred by unitholders is beyond the scope of this Ruling. | Section 35-55 - exercise of Commissioner's discretion: 72. A Grower who is an individual accepted into the Project on or after 1 July 2006 and on or before 15 June 2007 may have losses arising from their participation in the Project that would be deferred to a later income year under section 35-10. Subject to the Project being carried out in the manner described above, the Commissioner will exercise the discretion in paragraph 35-55(1)(b) for these Growers for the income years ending 30 June 2007 to 30 June 2011 . This conditional exercise of the discretion will allow those losses to be offset against the Grower's other assessable income in the income year in which the losses arise. | Sections 82KZME, 82KZMF and 82KL and Part IVA: 73. For a Grower who participates in the Project and incurs expenditure as required by the Farm Management Agreement and the Licence to Occupy Agreement the following provisions of the ITAA 1936 have application as indicated: Commissioner of Taxation 29 March 2006 | Is the Grower carrying on a business?: 74. For the amounts set out in the Tables above to constitute allowable deductions the Grower's horticultural activities as a participant in the RFM Almond Fund 2006 must amount to the carrying on of a business of primary production. 75. Where there is a business, or a future business, the gross proceeds from the sale of the Almonds will constitute gross assessable income in their own right. The generation of 'business income' from such a business, or future business, provides the backdrop against which to judge whether the outgoings in question have the requisite connection with the operations that more directly gain or produce this income. 76. For schemes such as that of the RFM Almond Fund 2006, Taxation Ruling TR 2000/8 sets out in paragraph 89 the circumstances in which the Grower's activities can constitute the carrying on of a business. As TR 2000/8 sets out, these circumstances have been established in court decisions such as Commissioner of Taxation v. Lau (1984) 6 FCR 202; 84 ATC 4929; (1984) 16 ATR 55. 77. Generally, a Grower will be carrying on a business of horticulture, and hence primary production, if: 78. In this Project, each Grower enters into a Farm Management Agreement and a Licence to Occupy Agreement. 79. Under the Licence to Occupy Agreement each individual Grower will have rights over a specific and identifiable area of 0.25 hectares of land. The Licence to Occupy Agreement provides the Grower with an ongoing interest in the specific trees on the licensed area for the term of the Project. Under the licence the Grower must use the land in question for the purpose of carrying out horticulture activities, and for no other purpose. The licence allows the Manager to come onto to the land to carry out its obligations under the Farm Management Agreement. 80. Under the Farm Management Agreement, the Manager is engaged by the Grower to establish and maintain a grove on the Grower's identifiable area of land during the term of the Project. The Manager has provided evidence that it holds the appropriate professional skills and credentials to provide the management services to maintain the grove on the Grower's behalf. 81. The Manager is also engaged to harvest and sell, on the Grower's behalf, the almonds grown on the Grower's grove. 82. The general indicators of a business, as used by the Courts, are described in Taxation Ruling TR 97/11. Positive findings can be made from the Project's description for all the indicators. 83. The activities that will be regularly carried out during the term of the Project demonstrate a significant commercial purpose. Based on reasonable projections, a Grower in the Project will derive assessable income from the sale of the almonds that will return a before-tax profit, that is a profit in cash terms that does not depend in its calculation on the fees in question being allowed as a deduction. 84. The pooling of almonds from Almond Trees grown on the Grower's grove with the almonds of other Growers is consistent with general horticultural practices. Each Grower's proportionate share of the sale proceeds of the pooled almonds will reflect the proportion of the Almond Trees contributed from their grove. 85. The Manager's services are also consistent with general horticultural practices. They are of the type ordinarily found in horticulture ventures that would commonly be said to be businesses. While the size of a grove is relatively small, it is of a size and scale to allow it to be commercially viable. 86. The Grower's degree of control over the Manager as evidenced by the Farm Management Agreement, and supplemented by the Corporations Act 2001 , is sufficient. During the term of the Project, the Manager will provide the Grower with regular progress reports on the Grower's grove and the activities carried out on the Grower's behalf. Growers are able to terminate arrangements with the Manager in certain instances, such as cases of default or neglect. 87. The horticulture activities, and hence the fees associated with their procurement, are consistent with an intention to commence regular activities that have an 'air of permanence' about them. For the purposes of this Ruling, the Growers' horticultural activities in the RFM Almond Fund 2006 will constitute the carrying on of a business. | Division 328: 88. Subdivision 328-F sets out the eligibility requirements that a Grower must satisfy in order to enter the STS and Subdivision 328-G sets out the rules for entering and leaving the STS. 89. The question of whether a Grower is eligible to be an 'STS taxpayer' is outside the scope of this Product Ruling. Therefore, any Grower who relies on those parts of this Ruling that refer to the STS will be assumed to have correctly determined whether or not they are eligible to be an 'STS taxpayer'. | Section 8-1: 90. Consideration of whether the initial management fees and licence fees are deductible under section 8-1 begins with the first limb of the section. This view proceeds on the following basis: 91. The Management Fees and Licence Fees associated with the horticulture activities will relate to the gaining of income from the Grower's business of horticulture (see above), and hence have a sufficient connection to the operations by which income (from the harvesting and sale of almonds is to be gained from this business. They will thus be deductible under the first limb of section 8-1. Further, no 'non-income producing' purpose in incurring the fee is identifiable from the arrangement. The fee appears to be reasonable. There is no capital component of the Management Fee. The tests of deductibility under the first limb of section 8-1 are met. The exclusions do not apply. | Section 8-1: (i) Growers who use Gateway Momentum Funding Trust No. 1 (Momentum) as the finance provider 92. Some Growers may finance their participation in the Project through a loan facility with Gateway Momentum Funding Trust No. 1 (Momentum). Whether the resulting interest costs are deductible under section 8-1 depends on the same reasoning as that applied to the deductibility of management fees and licence fees. 93. The interest incurred for the year ended 30 June 2007 and in subsequent years of income will be in respect of a loan to finance the Grower's business operations - the cultivation and growing of Almond Trees and the licence of the land on which the Almond Trees will have been planted - that will continue to be directly connected with the gaining of 'business income' from the Project. Such interest will, therefore, have a sufficient connection with the gaining of assessable income to be deductible under section 8-1. (ii) Growers who DO NOT use Gateway Momentum Funding Trust No. 1 (Momentum) as the finance provider 94. The deductibility of interest incurred by Growers who finance their participation in the Project through a loan facility with a bank or financier other than Gateway Momentum Funding Trust No. 1 (Momentum) is outside the scope of this Ruling. Product Rulings only deal with arrangements where all details and documentation have been provided to, and examined by the Tax Office. | Sections 82KZL to 82KZMF: 95. The prepayment provisions contained in Subdivision H of Division 3 of Part III of the ITAA 1936 affect the timing of deductions for certain prepaid expenditure. These provisions apply to certain expenditure incurred under an agreement in return for the doing of a thing under the agreement (for example the performance of management services or the leasing of land) that will not be wholly done within the same year of income as the year in which the expenditure is incurred. If expenditure is incurred to cover the provision of services to be provided within the same year, then it is not expenditure to which the prepayment rules apply. Application of the prepayment provisions to this Project 96. Under the Arrangement to which this Product Ruling applies Management and Licence Fees are incurred annually and interest payable to Gateway Momentum Funding Trust No. 1 (Momentum) is incurred monthly. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this Arrangement. 97. However, sections 82KZME and 82KZMF of the ITAA 1936 may have relevance if a Grower in this Project prepays all or some of the expenditure payable under the Farm Management Agreement and the Licence to Occupy Agreement or prepays interest under a loan agreement (including loan agreements with lenders other than Gateway Momentum Funding Trust No. 1 (Momentum)). Where such a prepayment is made these prepayment provisions will also apply to 'STS taxpayers' because there is no specific exclusion contained in section 82KZME that excludes them from the operation of section 82KZMF. 98. As noted in the Ruling section above, Growers who prepay fees or interest are not covered by this Product Ruling and may instead request a private ruling on the tax consequences of their participation in this Project. | Division 40: 99. Any part of the expenditure of a Grower that is attributable to acquiring an asset or advantage of an enduring kind is generally capital or capital in nature and will not be an allowable deduction under section 8-1. In this Project, expenditure attributable to the establishment of the 'Almond Trees' is of a capital nature. This expenditure falls for consideration under Division 40. 100. The tax treatment of capital expenditure has been dealt with in a representative way in paragraph 67 in the Table and accompanying notes. | Section 35-55 - exercise of Commissioner's discretion: 101. In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the income years 30 June 2007 to 30 June 2011 the Commissioner has applied the principles set out in Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses. Accordingly, based on the evidence supplied, the Commissioner has determined that for those income years ended 30 June 2007 up to and including 30 June 2011: 102. The exercise of the Commissioner's discretion under paragraph 35-55(1)(b) is conditional on the Project being carried on in the manner described in this Ruling during the income years specified. If the Project is carried out in a materially different way to that described in the Ruling a Grower will need to apply for a private ruling on the application of section 35-55 to those changed circumstances. | Section 82KL - recouped expenditure: 103. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits(s)'. Insufficient 'additional benefits' will be provided to trigger the application of section 82KL. It will not apply to deny the deduction otherwise allowable under section 8-1. | Part IVA - general tax avoidance provisions: 104. For Part IVA of the ITAA 1936 to apply there must be a 'scheme' (section 177A), a 'tax benefit' (section 177C) and a dominant purpose of entering into the scheme to obtain a tax benefit (section 177D). 105. The RFM Almond Fund 2006 will be a 'scheme'. A Grower will obtain a 'tax benefit' from entering into the scheme, in the form of tax deductions for the amounts detailed at paragraphs 66 to 67 that would not have been obtained but for the scheme. However, it is not possible to conclude the scheme will be entered into or carried out with the dominant purpose of obtaining this tax benefit. 106. Growers to whom this Ruling applies intend to stay in the scheme for its full term and derive assessable income from the harvesting and sale of the almonds. There are no facts that would suggest that Growers have the opportunity of obtaining a tax advantage other than the tax advantages identified in this Ruling. There is no non-recourse financing or round robin characteristics, and no indication that the parties are not dealing at arm's length or, if any parties are not dealing at arm's length, that any adverse tax consequences result. Further, having regard to the factors to be considered under paragraph 177D(b) of the ITAA 1936 it cannot be concluded, on the information available, that participants will enter into the scheme for the dominant purpose of obtaining a tax benefit. 107. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 54. Subject to paragraph 8, this Ruling applies only to Growers who are accepted to participate in the Project during the period 1 July 2006 and on or before 15 June 2007 and who have executed a Farm Management Agreement and a Licence to Occupy Agreement on or before that date. The Grower's participation in the Project must constitute the carrying on of a business of primary production. | Minimum subscription: 55. A Grower is not eligible to claim any tax deductions until the Grower's application to enter the Project is accepted and the Project has commenced. Under the terms of the Product Disclosure Statement, a Grower's application will not be accepted and the Project will not proceed until the minimum subscription of 400 interests is achieved. | Division 328: 56. For a Grower participating in the Project, the recognition of income and the timing of tax deductions is different depending on whether the Grower who was an 'STS taxpayer' prior to 1 July 2005 continues to use the cash accounting method (called the 'STS accounting method') - see sections 328-120 and 328-125 of the Income Tax (Transitional Provisions) Act 1997 . 57. For such Growers, a reference in this Ruling to an amount being deductible when 'incurred' will mean that the amount is deductible when paid and a reference to an amount being included in assessable income when 'derived' will mean that the amount is included in assessable income when received. | Qualification: 58. This Product Ruling assumes that a Grower who is an 'STS taxpayer' is so for the income year in which their participation in the Project commences. A Grower may become an 'STS taxpayer' at a later point in time. Also, a Grower who is an 'STS taxpayer' may choose to stop being an 'STS taxpayer', or may cease to be eligible to be an 'STS taxpayer', during the term of the Project. These are contingencies relating to the circumstances of individual Growers that cannot be accommodated in this Ruling. Such Growers can ask for a private ruling on how the taxation legislation applies to them. | Subdivision 61-J: 59. For the first income year starting on or after 1 July 2005, Subdivision 61-J provides for a tax offset of up to 25% of income tax liability related to the business income of a business in the STS with annual group turnover of less than $75,000. Entitlement to the offset varies depending on the type of entity and is therefore outside the scope of this Ruling. | Section 6-5: 60. That part of the gross sales proceeds from the Project attributable to the Grower's produce, less any GST payable on those proceeds (section 17-5), will be assessable income of the Grower under section 6-5. 61. The Grower recognises ordinary income from carrying on the business of horticulture at the time that income is derived. | Section 70-35: 62. A Grower who is not an 'STS taxpayer' may, in some years, hold almonds that will constitute trading stock on hand. Where, in an income year, the value of trading stock on hand at the end of an income year exceeds the value of trading stock on hand at the start of an income year a Grower must include the amount of that excess in assessable income. 63. Alternatively , where the value of trading stock on hand at the start of an income year exceeds the value of trading stock on hand at the end of an income year, a Grower may claim the amount of that excess as an allowable deduction. | Section 328-285: 64. A Grower who is an 'STS taxpayer' may, in some years, hold almonds that will constitute trading stock on hand. Where, for such a Grower, for an income year, the difference between the value of all their trading stock at the start and a reasonable estimate of it at the end, is less than $5,000, they do not have to account for that difference under the ordinary trading stock rules in Division 70 (subsection 328-285(1)). 65. Alternatively, a Grower who is an 'STS taxpayer' may instead choose to account for trading stock in an income year under the provisions of Division 70 (subsection 328-285(2)). | Sections 8-1 & 25-25: 66. A Grower may claim tax deductions under section 8-1 of the ITAA 1997, for the revenue expenses in the Table below. | Division 40: 67. Each Grower will also be entitled to tax deductions relating to the Almond Trees planted on the Grove. Notes: | Units in RFM Riverbank: 68. The units in Riverbank are CGT Assets (section 108-5) and the amounts payable by the investor are outgoings of a capital nature and not allowable as a deduction. 69. The amount paid for each unit will represent the first element of the cost base of the unit (subsection 110-25(2)). Any disposal of the units by a unitholder will be a CGT event and may give rise to a capital gain or loss. 70. Income distributions by RFM Riverbank are included in the assessable income of a Grower who is a Unit holder, in accordance with Division 6 of Part III of the ITAA 1936. 71. The deductibility of expenses which may be incurred by unitholders is beyond the scope of this Ruling. | Section 35-55 - exercise of Commissioner's discretion: 72. A Grower who is an individual accepted into the Project on or after 1 July 2006 and on or before 15 June 2007 may have losses arising from their participation in the Project that would be deferred to a later income year under section 35-10. Subject to the Project being carried out in the manner described above, the Commissioner will exercise the discretion in paragraph 35-55(1)(b) for these Growers for the income years ending 30 June 2007 to 30 June 2011 . This conditional exercise of the discretion will allow those losses to be offset against the Grower's other assessable income in the income year in which the losses arise. | Sections 82KZME, 82KZMF and 82KL and Part IVA: 73. For a Grower who participates in the Project and incurs expenditure as required by the Farm Management Agreement and the Licence to Occupy Agreement the following provisions of the ITAA 1936 have application as indicated: Commissioner of Taxation 29 March 2006 | Is the Grower carrying on a business?: 74. For the amounts set out in the Tables above to constitute allowable deductions the Grower's horticultural activities as a participant in the RFM Almond Fund 2006 must amount to the carrying on of a business of primary production. 75. Where there is a business, or a future business, the gross proceeds from the sale of the Almonds will constitute gross assessable income in their own right. The generation of 'business income' from such a business, or future business, provides the backdrop against which to judge whether the outgoings in question have the requisite connection with the operations that more directly gain or produce this income. 76. For schemes such as that of the RFM Almond Fund 2006, Taxation Ruling TR 2000/8 sets out in paragraph 89 the circumstances in which the Grower's activities can constitute the carrying on of a business. As TR 2000/8 sets out, these circumstances have been established in court decisions such as Commissioner of Taxation v. Lau (1984) 6 FCR 202; 84 ATC 4929; (1984) 16 ATR 55. 77. Generally, a Grower will be carrying on a business of horticulture, and hence primary production, if: 78. In this Project, each Grower enters into a Farm Management Agreement and a Licence to Occupy Agreement. 79. Under the Licence to Occupy Agreement each individual Grower will have rights over a specific and identifiable area of 0.25 hectares of land. The Licence to Occupy Agreement provides the Grower with an ongoing interest in the specific trees on the licensed area for the term of the Project. Under the licence the Grower must use the land in question for the purpose of carrying out horticulture activities, and for no other purpose. The licence allows the Manager to come onto to the land to carry out its obligations under the Farm Management Agreement. 80. Under the Farm Management Agreement, the Manager is engaged by the Grower to establish and maintain a grove on the Grower's identifiable area of land during the term of the Project. The Manager has provided evidence that it holds the appropriate professional skills and credentials to provide the management services to maintain the grove on the Grower's behalf. 81. The Manager is also engaged to harvest and sell, on the Grower's behalf, the almonds grown on the Grower's grove. 82. The general indicators of a business, as used by the Courts, are described in Taxation Ruling TR 97/11. Positive findings can be made from the Project's description for all the indicators. 83. The activities that will be regularly carried out during the term of the Project demonstrate a significant commercial purpose. Based on reasonable projections, a Grower in the Project will derive assessable income from the sale of the almonds that will return a before-tax profit, that is a profit in cash terms that does not depend in its calculation on the fees in question being allowed as a deduction. 84. The pooling of almonds from Almond Trees grown on the Grower's grove with the almonds of other Growers is consistent with general horticultural practices. Each Grower's proportionate share of the sale proceeds of the pooled almonds will reflect the proportion of the Almond Trees contributed from their grove. 85. The Manager's services are also consistent with general horticultural practices. They are of the type ordinarily found in horticulture ventures that would commonly be said to be businesses. While the size of a grove is relatively small, it is of a size and scale to allow it to be commercially viable. 86. The Grower's degree of control over the Manager as evidenced by the Farm Management Agreement, and supplemented by the Corporations Act 2001 , is sufficient. During the term of the Project, the Manager will provide the Grower with regular progress reports on the Grower's grove and the activities carried out on the Grower's behalf. Growers are able to terminate arrangements with the Manager in certain instances, such as cases of default or neglect. 87. The horticulture activities, and hence the fees associated with their procurement, are consistent with an intention to commence regular activities that have an 'air of permanence' about them. For the purposes of this Ruling, the Growers' horticultural activities in the RFM Almond Fund 2006 will constitute the carrying on of a business. | Division 328: 88. Subdivision 328-F sets out the eligibility requirements that a Grower must satisfy in order to enter the STS and Subdivision 328-G sets out the rules for entering and leaving the STS. 89. The question of whether a Grower is eligible to be an 'STS taxpayer' is outside the scope of this Product Ruling. Therefore, any Grower who relies on those parts of this Ruling that refer to the STS will be assumed to have correctly determined whether or not they are eligible to be an 'STS taxpayer'. | Section 8-1: 90. Consideration of whether the initial management fees and licence fees are deductible under section 8-1 begins with the first limb of the section. This view proceeds on the following basis: 91. The Management Fees and Licence Fees associated with the horticulture activities will relate to the gaining of income from the Grower's business of horticulture (see above), and hence have a sufficient connection to the operations by which income (from the harvesting and sale of almonds is to be gained from this business. They will thus be deductible under the first limb of section 8-1. Further, no 'non-income producing' purpose in incurring the fee is identifiable from the arrangement. The fee appears to be reasonable. There is no capital component of the Management Fee. The tests of deductibility under the first limb of section 8-1 are met. The exclusions do not apply. | Section 8-1: (i) Growers who use Gateway Momentum Funding Trust No. 1 (Momentum) as the finance provider 92. Some Growers may finance their participation in the Project through a loan facility with Gateway Momentum Funding Trust No. 1 (Momentum). Whether the resulting interest costs are deductible under section 8-1 depends on the same reasoning as that applied to the deductibility of management fees and licence fees. 93. The interest incurred for the year ended 30 June 2007 and in subsequent years of income will be in respect of a loan to finance the Grower's business operations - the cultivation and growing of Almond Trees and the licence of the land on which the Almond Trees will have been planted - that will continue to be directly connected with the gaining of 'business income' from the Project. Such interest will, therefore, have a sufficient connection with the gaining of assessable income to be deductible under section 8-1. (ii) Growers who DO NOT use Gateway Momentum Funding Trust No. 1 (Momentum) as the finance provider 94. The deductibility of interest incurred by Growers who finance their participation in the Project through a loan facility with a bank or financier other than Gateway Momentum Funding Trust No. 1 (Momentum) is outside the scope of this Ruling. Product Rulings only deal with arrangements where all details and documentation have been provided to, and examined by the Tax Office. | Sections 82KZL to 82KZMF: 95. The prepayment provisions contained in Subdivision H of Division 3 of Part III of the ITAA 1936 affect the timing of deductions for certain prepaid expenditure. These provisions apply to certain expenditure incurred under an agreement in return for the doing of a thing under the agreement (for example the performance of management services or the leasing of land) that will not be wholly done within the same year of income as the year in which the expenditure is incurred. If expenditure is incurred to cover the provision of services to be provided within the same year, then it is not expenditure to which the prepayment rules apply. Application of the prepayment provisions to this Project 96. Under the Arrangement to which this Product Ruling applies Management and Licence Fees are incurred annually and interest payable to Gateway Momentum Funding Trust No. 1 (Momentum) is incurred monthly. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this Arrangement. 97. However, sections 82KZME and 82KZMF of the ITAA 1936 may have relevance if a Grower in this Project prepays all or some of the expenditure payable under the Farm Management Agreement and the Licence to Occupy Agreement or prepays interest under a loan agreement (including loan agreements with lenders other than Gateway Momentum Funding Trust No. 1 (Momentum)). Where such a prepayment is made these prepayment provisions will also apply to 'STS taxpayers' because there is no specific exclusion contained in section 82KZME that excludes them from the operation of section 82KZMF. 98. As noted in the Ruling section above, Growers who prepay fees or interest are not covered by this Product Ruling and may instead request a private ruling on the tax consequences of their participation in this Project. | Division 40: 99. Any part of the expenditure of a Grower that is attributable to acquiring an asset or advantage of an enduring kind is generally capital or capital in nature and will not be an allowable deduction under section 8-1. In this Project, expenditure attributable to the establishment of the 'Almond Trees' is of a capital nature. This expenditure falls for consideration under Division 40. 100. The tax treatment of capital expenditure has been dealt with in a representative way in paragraph 67 in the Table and accompanying notes. | Section 35-55 - exercise of Commissioner's discretion: 101. In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the income years 30 June 2007 to 30 June 2011 the Commissioner has applied the principles set out in Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses. Accordingly, based on the evidence supplied, the Commissioner has determined that for those income years ended 30 June 2007 up to and including 30 June 2011: 102. The exercise of the Commissioner's discretion under paragraph 35-55(1)(b) is conditional on the Project being carried on in the manner described in this Ruling during the income years specified. If the Project is carried out in a materially different way to that described in the Ruling a Grower will need to apply for a private ruling on the application of section 35-55 to those changed circumstances. | Section 82KL - recouped expenditure: 103. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits(s)'. Insufficient 'additional benefits' will be provided to trigger the application of section 82KL. It will not apply to deny the deduction otherwise allowable under section 8-1. | Part IVA - general tax avoidance provisions: 104. For Part IVA of the ITAA 1936 to apply there must be a 'scheme' (section 177A), a 'tax benefit' (section 177C) and a dominant purpose of entering into the scheme to obtain a tax benefit (section 177D). 105. The RFM Almond Fund 2006 will be a 'scheme'. A Grower will obtain a 'tax benefit' from entering into the scheme, in the form of tax deductions for the amounts detailed at paragraphs 66 to 67 that would not have been obtained but for the scheme. However, it is not possible to conclude the scheme will be entered into or carried out with the dominant purpose of obtaining this tax benefit. 106. Growers to whom this Ruling applies intend to stay in the scheme for its full term and derive assessable income from the harvesting and sale of the almonds. There are no facts that would suggest that Growers have the opportunity of obtaining a tax advantage other than the tax advantages identified in this Ruling. There is no non-recourse financing or round robin characteristics, and no indication that the parties are not dealing at arm's length or, if any parties are not dealing at arm's length, that any adverse tax consequences result. Further, having regard to the factors to be considered under paragraph 177D(b) of the ITAA 1936 it cannot be concluded, on the information available, that participants will enter into the scheme for the dominant purpose of obtaining a tax benefit. 107. The following is a detailed contents list for this Ruling: Not previously issued as a draft


Appendix: Is the Grower carrying on a business?: 74. For the amounts set out in the Tables above to constitute allowable deductions the Grower's horticultural activities as a participant in the RFM Almond Fund 2006 must amount to the carrying on of a business of primary production. 75. Where there is a business, or a future business, the gross proceeds from the sale of the Almonds will constitute gross assessable income in their own right. The generation of 'business income' from such a business, or future business, provides the backdrop against which to judge whether the outgoings in question have the requisite connection with the operations that more directly gain or produce this income. 76. For schemes such as that of the RFM Almond Fund 2006, Taxation Ruling TR 2000/8 sets out in paragraph 89 the circumstances in which the Grower's activities can constitute the carrying on of a business. As TR 2000/8 sets out, these circumstances have been established in court decisions such as Commissioner of Taxation v. Lau (1984) 6 FCR 202; 84 ATC 4929; (1984) 16 ATR 55. 77. Generally, a Grower will be carrying on a business of horticulture, and hence primary production, if: 78. In this Project, each Grower enters into a Farm Management Agreement and a Licence to Occupy Agreement. 79. Under the Licence to Occupy Agreement each individual Grower will have rights over a specific and identifiable area of 0.25 hectares of land. The Licence to Occupy Agreement provides the Grower with an ongoing interest in the specific trees on the licensed area for the term of the Project. Under the licence the Grower must use the land in question for the purpose of carrying out horticulture activities, and for no other purpose. The licence allows the Manager to come onto to the land to carry out its obligations under the Farm Management Agreement. 80. Under the Farm Management Agreement, the Manager is engaged by the Grower to establish and maintain a grove on the Grower's identifiable area of land during the term of the Project. The Manager has provided evidence that it holds the appropriate professional skills and credentials to provide the management services to maintain the grove on the Grower's behalf. 81. The Manager is also engaged to harvest and sell, on the Grower's behalf, the almonds grown on the Grower's grove. 82. The general indicators of a business, as used by the Courts, are described in Taxation Ruling TR 97/11. Positive findings can be made from the Project's description for all the indicators. 83. The activities that will be regularly carried out during the term of the Project demonstrate a significant commercial purpose. Based on reasonable projections, a Grower in the Project will derive assessable income from the sale of the almonds that will return a before-tax profit, that is a profit in cash terms that does not depend in its calculation on the fees in question being allowed as a deduction. 84. The pooling of almonds from Almond Trees grown on the Grower's grove with the almonds of other Growers is consistent with general horticultural practices. Each Grower's proportionate share of the sale proceeds of the pooled almonds will reflect the proportion of the Almond Trees contributed from their grove. 85. The Manager's services are also consistent with general horticultural practices. They are of the type ordinarily found in horticulture ventures that would commonly be said to be businesses. While the size of a grove is relatively small, it is of a size and scale to allow it to be commercially viable. 86. The Grower's degree of control over the Manager as evidenced by the Farm Management Agreement, and supplemented by the Corporations Act 2001 , is sufficient. During the term of the Project, the Manager will provide the Grower with regular progress reports on the Grower's grove and the activities carried out on the Grower's behalf. Growers are able to terminate arrangements with the Manager in certain instances, such as cases of default or neglect. 87. The horticulture activities, and hence the fees associated with their procurement, are consistent with an intention to commence regular activities that have an 'air of permanence' about them. For the purposes of this Ruling, the Growers' horticultural activities in the RFM Almond Fund 2006 will constitute the carrying on of a business. | Division 328: 88. Subdivision 328-F sets out the eligibility requirements that a Grower must satisfy in order to enter the STS and Subdivision 328-G sets out the rules for entering and leaving the STS. 89. The question of whether a Grower is eligible to be an 'STS taxpayer' is outside the scope of this Product Ruling. Therefore, any Grower who relies on those parts of this Ruling that refer to the STS will be assumed to have correctly determined whether or not they are eligible to be an 'STS taxpayer'. | Section 8-1: 90. Consideration of whether the initial management fees and licence fees are deductible under section 8-1 begins with the first limb of the section. This view proceeds on the following basis: 91. The Management Fees and Licence Fees associated with the horticulture activities will relate to the gaining of income from the Grower's business of horticulture (see above), and hence have a sufficient connection to the operations by which income (from the harvesting and sale of almonds is to be gained from this business. They will thus be deductible under the first limb of section 8-1. Further, no 'non-income producing' purpose in incurring the fee is identifiable from the arrangement. The fee appears to be reasonable. There is no capital component of the Management Fee. The tests of deductibility under the first limb of section 8-1 are met. The exclusions do not apply. | Section 8-1: (i) Growers who use Gateway Momentum Funding Trust No. 1 (Momentum) as the finance provider 92. Some Growers may finance their participation in the Project through a loan facility with Gateway Momentum Funding Trust No. 1 (Momentum). Whether the resulting interest costs are deductible under section 8-1 depends on the same reasoning as that applied to the deductibility of management fees and licence fees. 93. The interest incurred for the year ended 30 June 2007 and in subsequent years of income will be in respect of a loan to finance the Grower's business operations - the cultivation and growing of Almond Trees and the licence of the land on which the Almond Trees will have been planted - that will continue to be directly connected with the gaining of 'business income' from the Project. Such interest will, therefore, have a sufficient connection with the gaining of assessable income to be deductible under section 8-1. (ii) Growers who DO NOT use Gateway Momentum Funding Trust No. 1 (Momentum) as the finance provider 94. The deductibility of interest incurred by Growers who finance their participation in the Project through a loan facility with a bank or financier other than Gateway Momentum Funding Trust No. 1 (Momentum) is outside the scope of this Ruling. Product Rulings only deal with arrangements where all details and documentation have been provided to, and examined by the Tax Office. | Sections 82KZL to 82KZMF: 95. The prepayment provisions contained in Subdivision H of Division 3 of Part III of the ITAA 1936 affect the timing of deductions for certain prepaid expenditure. These provisions apply to certain expenditure incurred under an agreement in return for the doing of a thing under the agreement (for example the performance of management services or the leasing of land) that will not be wholly done within the same year of income as the year in which the expenditure is incurred. If expenditure is incurred to cover the provision of services to be provided within the same year, then it is not expenditure to which the prepayment rules apply. Application of the prepayment provisions to this Project 96. Under the Arrangement to which this Product Ruling applies Management and Licence Fees are incurred annually and interest payable to Gateway Momentum Funding Trust No. 1 (Momentum) is incurred monthly. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this Arrangement. 97. However, sections 82KZME and 82KZMF of the ITAA 1936 may have relevance if a Grower in this Project prepays all or some of the expenditure payable under the Farm Management Agreement and the Licence to Occupy Agreement or prepays interest under a loan agreement (including loan agreements with lenders other than Gateway Momentum Funding Trust No. 1 (Momentum)). Where such a prepayment is made these prepayment provisions will also apply to 'STS taxpayers' because there is no specific exclusion contained in section 82KZME that excludes them from the operation of section 82KZMF. 98. As noted in the Ruling section above, Growers who prepay fees or interest are not covered by this Product Ruling and may instead request a private ruling on the tax consequences of their participation in this Project. | Division 40: 99. Any part of the expenditure of a Grower that is attributable to acquiring an asset or advantage of an enduring kind is generally capital or capital in nature and will not be an allowable deduction under section 8-1. In this Project, expenditure attributable to the establishment of the 'Almond Trees' is of a capital nature. This expenditure falls for consideration under Division 40. 100. The tax treatment of capital expenditure has been dealt with in a representative way in paragraph 67 in the Table and accompanying notes. | Section 35-55 - exercise of Commissioner's discretion: 101. In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the income years 30 June 2007 to 30 June 2011 the Commissioner has applied the principles set out in Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses. Accordingly, based on the evidence supplied, the Commissioner has determined that for those income years ended 30 June 2007 up to and including 30 June 2011: 102. The exercise of the Commissioner's discretion under paragraph 35-55(1)(b) is conditional on the Project being carried on in the manner described in this Ruling during the income years specified. If the Project is carried out in a materially different way to that described in the Ruling a Grower will need to apply for a private ruling on the application of section 35-55 to those changed circumstances. | Section 82KL - recouped expenditure: 103. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits(s)'. Insufficient 'additional benefits' will be provided to trigger the application of section 82KL. It will not apply to deny the deduction otherwise allowable under section 8-1. | Part IVA - general tax avoidance provisions: 104. For Part IVA of the ITAA 1936 to apply there must be a 'scheme' (section 177A), a 'tax benefit' (section 177C) and a dominant purpose of entering into the scheme to obtain a tax benefit (section 177D). 105. The RFM Almond Fund 2006 will be a 'scheme'. A Grower will obtain a 'tax benefit' from entering into the scheme, in the form of tax deductions for the amounts detailed at paragraphs 66 to 67 that would not have been obtained but for the scheme. However, it is not possible to conclude the scheme will be entered into or carried out with the dominant purpose of obtaining this tax benefit. 106. Growers to whom this Ruling applies intend to stay in the scheme for its full term and derive assessable income from the harvesting and sale of the almonds. There are no facts that would suggest that Growers have the opportunity of obtaining a tax advantage other than the tax advantages identified in this Ruling. There is no non-recourse financing or round robin characteristics, and no indication that the parties are not dealing at arm's length or, if any parties are not dealing at arm's length, that any adverse tax consequences result. Further, having regard to the factors to be considered under paragraph 177D(b) of the ITAA 1936 it cannot be concluded, on the information available, that participants will enter into the scheme for the dominant purpose of obtaining a tax benefit.


What this Ruling is about | A public ruling is an expression of the Commissioner's opinion about the way in which a taxation provision applies, or would apply, to entities generally or to a class of entities in relation to a particular scheme or a class of schemes. | If you rely on this ruling, we must apply the law to you in the way set out in the ruling (or in a way that is more favourable for you if we are satisfied that the ruling is incorrect and disadvantages you, and we are not prevented from doing so by a time limit imposed by the law). You will be protected from having to pay any underpaid tax, penalty or interest in respect of the matters covered by this ruling if it turns out that it does not correctly state how the relevant provision applies to you. | [Note: This is a consolidated version of this document. Refer to the Tax Office Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.] | No guarantee of commercial success: The Tax Office does not sanction or guarantee this product. Further, we give no assurance that the product is commercially viable, that charges are reasonable, appropriate or represent industry norms, or that projected returns will be achieved or are reasonably based. | Potential participants must form their own view about the commercial and financial viability of the product. This will involve a consideration of important issues such as whether projected returns are realistic, the 'track record' of the management, the level of fees in comparison to similar products and how the product fits an existing portfolio. We recommend a financial (or other) adviser be consulted for such information. | This Product Ruling provides certainty for potential participants by confirming that the tax benefits set out in the Ruling part of this document are available, provided that the scheme is carried out in accordance with the information we have been given, and have described below in the Scheme part of this document. | If the scheme is not carried out as described, participants lose the protection of this Product Ruling. Potential participants may wish to seek assurances from the promoter that the scheme will be carried out as described in this Product Ruling. | Potential participants should be aware that the Tax Office will be undertaking review activities to confirm the scheme has been implemented as described below and to ensure that the participants in the scheme include in their income tax returns income derived in those future years. | Hillston, New South Wales | Type of business to be carried on by each participant | Commercial growing, cultivation and harvesting almonds for sale. | Number of hectares offered for cultivation | Up to 575 hectares with a capacity for oversubscription. | Number of trees per hectare | Annual 'Management Fees' Annual 'Licence Fees' Annual 'Operating Costs' | $11,183 See Notes (i), (ii) & (viii) | $1,285 See Notes (i), (ii) & (viii) | $195 See Notes (i), (ii) & (viii) | Amount must be calculated See Notes (i), (iii), (iv) & (viii) | $815 See Notes (i), (v) & (viii) | Amount to be calculated See Notes (i) & (vii) | Interest on loans with Gateway Momentum Funding Trust No. 1 (Momentum) | As incurred See Notes (viii) & (ix) | Loan Application Fee for loans with Gateway Momentum Funding Trust No. 1 (Momentum) | Must be calculated See Note (x) | Establishment of horticultural plant Almond Trees | What this Product Ruling is about | The Simplified Tax System (STS) | 25% entrepreneurs tax offset | Deductions for Initial Management Fees, Licence Fees, Interest and Borrowing Costs | Deductions for capital expenditure | Division 35 - deferral of losses from non-commercial business activities | The Simplified Tax System | Expenditure of a capital nature | Appendix 2 - Detailed contents list

Withdrawal notice: 14. This Product Ruling is withdrawn and ceases to have effect after 30 June 2010. The Ruling continues to apply, in respect of the tax laws ruled upon, to all entities within the specified class who enter into the arrangement specified below. Thus, the Ruling continues to apply to those entities, even following its withdrawal, who entered into the specified scheme prior to withdrawal of the Ruling. This is subject to there being no change in the scheme or in the entity's involvement in the scheme.

Related rulings: PR 2006/24 TD 93/34 TR 92/20 TR 97/11 TR 98/22 TR 2000/8 TR 2001/14
Legislative references: ITAA 1936 82KL ITAA 1936 Pt III Div 3 Subdiv H ITAA 1936 82KZL ITAA 1936 82KZM ITAA 1936 82KZMA ITAA 1936 82KZMB ITAA 1936 82KZMC ITAA 1936 82KZMD ITAA 1936 82KZME ITAA 1936 82KZMF ITAA 1936 Pt III Div 6 ITAA 1936 Pt IVA ITAA 1936 177A ITAA 1936 177C ITAA 1936 177D ITAA 1936 177D(b) ITAA 1997 6-5 ITAA 1997 8-1 ITAA 1997 17-5 ITAA 1997 25-25 ITAA 1997 Div 27 ITAA 1997 Div 35 ITAA 1997 35-10 ITAA 1997 35-10(2) ITAA 1997 35-55 ITAA 1997 35-55(1)(b) ITAA 1997 Div 40 ITAA 1997 40-515 ITAA 1997 40-515(1)(b) ITAA 1997 40-520(2) ITAA 1997 40-525(2) ITAA 1997 40-530 ITAA 1997 40-545 ITAA 1997 Subdiv 61-J ITAA 1997 Div 70 ITAA 1997 70-35 ITAA 1997 Pt 3-1 ITAA 1997 108-5 ITAA 1997 110-25(2) ITAA 1997 Div 328 ITAA 1997 328-285 ITAA 1997 328-285(1) ITAA 1997 328-285(2) ITAA 1997 Subdiv 328-F ITAA 1997 Subdiv 328-G IT(TP)A 1997 Div 328 IT(TP)A 1997 328-120 IT(TP)A 1997 328-125 TAA 1953 Copyright Act 1968 Corporations Act 2001
Case references: Commissioner of Taxation v. Lau (1984) 6 FCR 202 84 ATC 4929 (1984) 16ATR 55
Subject references: carrying on a business commencement of business fee expenses interest expenses management fees non-commercial losses producing assessable income product rulings public rulings tax avoidance tax benefits under tax avoidance schemes tax shelters tax shelters project taxation administration