Product Ruling PR 2022/4
Date of effect: 1 June 2022

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities that takes part in the scheme to which this Product Ruling relates. In this Product Ruling, the scheme is referred to as W.A. Blue Gum Project 2022 or the Project. 2. All legislative references in this Product Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Where used in this Product Ruling, the word 'associate' has the meaning given in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Capitalised terms in this Product Ruling take their meaning from the documents referred to in paragraph 47 of this Product Ruling.

Class of entities or scheme: 3. This part of the Product Ruling specifies which entities are subject to the tax obligations and can rely on the tax benefits set out in the Ruling section of this Product Ruling. 4. The members of the class of entities that are subject to those tax obligations and can rely on those tax benefits are referred to in this Product Ruling as 'Growers'. 5. Growers are those entities that: 6. A Grower will have executed the relevant Project Agreements on or before 30 June 2022 and will hold a forestry interest [1] in the Project. 7. The class of entities that can rely on the tax benefits set out in the Ruling section of this Product Ruling does not include entities: | Superannuation Industry (Supervision) Act 1993: 8. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). 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 Product Ruling as to whether investment in this scheme may contravene the provisions of the SISA. | Qualifications: 9. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 47 to 95 of this Product Ruling. 10. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then this Product Ruling:

Ruling: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities that takes part in the scheme to which this Product Ruling relates. In this Product Ruling, the scheme is referred to as W.A. Blue Gum Project 2022 or the Project. 2. All legislative references in this Product Ruling are to the Income Tax Assessment Act 1997, unless otherwise indicated. Where used in this Product Ruling, the word 'associate' has the meaning given in section 318 of the Income Tax Assessment Act 1936 (ITAA 1936). Capitalised terms in this Product Ruling take their meaning from the documents referred to in paragraph 47 of this Product Ruling. | Class of entities: 3. This part of the Product Ruling specifies which entities are subject to the tax obligations and can rely on the tax benefits set out in the Ruling section of this Product Ruling. 4. The members of the class of entities that are subject to those tax obligations and can rely on those tax benefits are referred to in this Product Ruling as 'Growers'. 5. Growers are those entities that: 6. A Grower will have executed the relevant Project Agreements on or before 30 June 2022 and will hold a forestry interest [1] in the Project. 7. The class of entities that can rely on the tax benefits set out in the Ruling section of this Product Ruling does not include entities: | Superannuation Industry (Supervision) Act 1993: 8. This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). 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 Product Ruling as to whether investment in this scheme may contravene the provisions of the SISA. | Qualifications: 9. The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 47 to 95 of this Product Ruling. 10. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then this Product Ruling:


Appendix: Structure of the W.A. Blue Gum Project 2022: 96. In return for payment of the fee for the Establishment of the Plantation and the other fees and expenses required under the Plantation Management Contract, Sub-lease and Wood Purchase Agreement during the term of the Project, Growers will hold a forestry interest in a forestry managed investment scheme. The Project qualifies as a forestry managed investment scheme because its purpose is for establishing and tending trees for felling in Australia (see subsection 394-15(1)). 97. Under the Constitution of the Project and the other supporting agreements, the holding of a forestry interest in the Project gives each Grower a right to a share in the proceeds of the Harvest and a share of the proceeds of any thinning of the Trees grown on the Project Land. That share of proceeds is determined using the number of forestry interests held by a Grower as a proportion of all forestry interests held by participants in the Project. | Is the Grower carrying on an enterprise?: 98. An entity may be registered for GST if it is carrying on an enterprise (section 23-10 of the GST Act). 99. The term 'enterprise' is defined in section 9-20 of the GST Act and includes an activity, or series of activities, done in the form of a business (paragraph 9-20(1)(a) of the GST Act). The use of the phrase 'in the form of' has been interpreted to indicate a wider meaning than the word 'business' in isolation. 100. However, subsection 9-20(2) of the GST Act provides that the term enterprise does not include an activity, or series of activities, done by an individual or partnership without a reasonable expectation of profit or gain. 101. Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number sets out the Commissioner's views on when an entity is carrying on an enterprise for the purposes of section 9-20 of the GST Act. 102. Application of the principles set out in MT 2006/1 to the scheme set out in this Product Ruling leads to the conclusion that a Grower (as described in paragraphs 3 to 7 of this Product Ruling) will be carrying on an enterprise for the purpose of section 9-20 of the GST Act where there is a reasonable expectation of profit or gain from their participation in the Project. | Is the Grower carrying on a business?: 103. The general indicators used by the courts in determining whether an entity is carrying on a business are set out in Taxation Ruling TR 97 /11 Income tax: am I carrying on a business of primary production? 104. In relation to a managed investment scheme similar to that which is the subject of this Product Ruling, the Full Federal Court in Hance v Commissioner of Taxation [2008] FCAFC 196 at [90] applied these principles to conclude that the participants in that scheme were carrying on a business of producing almonds. 105. Application of these principles to the scheme set out in this Product Ruling leads to the conclusion that Growers (as described in paragraphs 3 to 7 of this Product Ruling) that stay in the Project until its completion will be carrying on a business of primary production involving forestry activities. | Sections 8-5, 12-5 and 394-10: 106. Section 8-5 allows certain specific deductions to be claimed against the assessable income of a taxpayer. The list of specific deductions is shown in a table in section 12-5 and includes payments under a forestry managed investment scheme that meet the requirements of subsection 394-10(1). 107. Payments that relate to processing are not deductible to Growers as a payment under a forestry managed investment scheme. However, a deduction will be available under section 8-1 as Growers will be carrying on a business activity. | The 70% DFE rule - paragraph 394-10(1)(c) and section 394-35: 108. The threshold test for Growers in the Project to be entitled to deductions under subsection 394-10(1) is the 70% DFE rule in paragraph 394-10(1)(c). Under that rule, it must be reasonable to expect on 30 June 2022 that the amount of 'direct forestry expenditure' [9] under the scheme will be no less than 70% of the amount of payments under the scheme. [10] 109. The amount of direct forestry expenditure under the scheme is the amount of the net present value (on 30 June 2022) of all direct forestry expenditure under the scheme that the Responsible Entity, as the 'forestry manager' [11] of the Project, has paid or will pay under the scheme (subsection 394-35(2)). 110. The 'amount of payments under the scheme' is the amount of the net present value (on 30 June 2022) of all amounts (that is, the fees and expenses) that all current and future participants in the scheme have paid or will pay under the scheme (subsection 394-35(3)). 111. The amounts described in paragraphs 109 and 110 of this Product Ruling are determined as at 30 June 2022 taking into account: 112. Based on the information provided by the Responsible Entity of the Project, the Commissioner has determined that the Project will satisfy the 70% DFE rule on 30 June 2022. | Other elements for deductibility under subsection 394-10(1): 113. The requirements of paragraphs 394-10(1)(a) and (b) are met as a Grower will hold a forestry interest in the Project (see paragraph 6 of this Product Ruling) and will pay an amount under the Project. The requirement of paragraph 394-10(1)(d) is met as it is clear from the Project Agreements that Growers in the Project do not have day-to-day control over the operation of the Project. The requirement of paragraph 394-10(1)(e) relating to the number of Growers in the scheme and the Responsible Entity's role in other managed investment schemes is also met. 114. All of the Trees intended to be Established under the Project must be Established within 18 months of 30 June 2022 (see paragraph 394-10(1)(f) and subsection 394-10(4)). The planting and/or Coppicing timeline provided with the application for this Product Ruling by the Responsible Entity indicates that all the Trees required to be Established under the scheme will be planted and/or Coppiced on the Project Land by 31 December 2023. 115. Accordingly, subject to the qualifications set out in paragraphs 118 to 123 of this Product Ruling, amounts paid by Growers to the Responsible Entity in relation to their forestry interests satisfy all of the requirements of subsection 394-10(1). The amounts are allowable deductions in the income year in which they are paid (subsection 394-10(2)). 116. Amounts that are allowable deductions under Division 394 cannot also be claimed as deductions under section 8-1 (section 8-10). 117. Where a Grower does not fully pay an amount, or the amount is not fully paid on their behalf, in an income year (see section 394-20), it is deductible only to the extent to which it has been paid. The unpaid balance is then deductible in the year or years in which it is actually paid. This may occur, for example, if all or part of the amount is borrowed and the financier fails to transfer the funds to the account of the forestry manager on or before 30 June in an income year. | Loss of deductions previously allowed under subsection 394-10(1): 118. Two situations may lead to a disallowance of deductions previously allowed to Growers under subsection 394-10(1). 119. The first of these situations will occur if the condition in subsection 394-10(4) is not met in relation to the Project. That is, the Responsible Entity fails to Establish all of the Trees on the Project Land within 18 months of 30 June 2022. Where this occurs, the Responsible Entity is required to notify the Commissioner within three months of the end of the 18-month period (section 394-10 of Schedule 1 to the Taxation Administration Act 1953). 120. The second situation where a Grower may have deductions disallowed is where a CGT event happens to their forestry interest within four years after 30 June of the income year in which they first paid an amount under the scheme, for example, the fee for the Establishment of the Plantation (see subsection 394-10(5)). 121. For the purposes of giving effect to subsection 394-10(5), the Commissioner is able to amend the assessment of a Grower within 2 years after the relevant CGT event. The Commissioner's power to amend in these circumstances applies despite section 170 of the ITAA 1936 (subsection 394-10(6)). 122. Where a CGT event happens to the forestry interest of a Grower within 4 years after 30 June 2022, the market value of the forestry interest at the time of the CGT event, or any decrease in the market value of the forestry interest as a result of the CGT event, is still included in the assessable income of the Grower by section 394-25. The amount must be included in assessable income even where an amendment has disallowed, or may disallow, the deductions previously allowed under section 394-10. 123. However, subsection 394-10(5) will have no application where the CGT event happens because of circumstances outside the Grower's control and the Grower could not reasonably have foreseen the CGT event happening when they acquired the forestry interest (subsection 394-10(5A)). | Interest on loans to finance the forestry interest of a Grower - section 8-1: 124. Where a Grower borrows money to fund their investment in the Project, the deductibility of the interest incurred on the loan monies falls for consideration under the general deduction provisions of section 8-1. If the interest incurred by the Grower is deductible under the first positive limb in paragraph 8-1(1)(a), there is no requirement to consider whether it is also deductible under the second positive limb in paragraph 8-1(1)(b). Court decisions show that the same basic test applies to both limbs (see Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15). 125. Under the first positive limb in paragraph 8-1(1)(a), the interest incurred by a Grower will be deductible if it is incurred in gaining or producing a Grower's assessable income and is not excluded by one of the negative limbs in subsection 8-1(2), in line with the following case law: 126. Growers in the Project use the borrowed funds to acquire a forestry interest in a forestry managed investment scheme. The holding of that forestry interest will give rise to assessable income of a Grower in the form of the proceeds of a full or part disposal of the forestry interest or, a proportionate share of the Harvest proceeds. Therefore, the tests of deductibility of interest under the first limb of subsection 8-1(1) are met, unless one of the exclusions in subsection 8-1(2) apply. 127. For the purposes of this Project, only the capital exclusion in paragraph 8-1(2)(a) is relevant. The use of borrowed funds to purchase a capital asset, such as a forestry interest, does not mean that the interest outgoings are on capital account (see Australian National Hotels Ltd v Commissioner of Taxation [1988] FCA 470: 128. Therefore, the capital exclusion in subsection 8-1(2) does not apply to the interest incurred by a Grower under the loan entered into with Albany as described in paragraphs 94 and 95 of this Product Ruling and, subject only to the potential application of the prepayment provisions, the interest is deductible in the year in which it is incurred. Note: The meaning of incurred is explained in Taxation Ruling TR 97/7 Income tax: section 8-1 - meaning of 'incurred' - timing of deductions. | Prepayment provisions - sections 82KZL to 82KZMF of the ITAA 1936: 129. 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 that will not be wholly done within the same year of income as the year in which the expenditure is incurred. For schemes such as this Project, the main operative provisions are sections 82KZMD and 82KZMF of the ITAA 1936. 130. However, subsection 394-10(7) specifically provides that sections 82KZMD and 82KZMF of the ITAA 1936 do not affect the timing of amounts deductible under section 394-10. 131. The conditions applying to the loans to which this Product Ruling applies do not require any prepayment of interest over the term of the loan (see paragraphs 91 to 95 of this Product Ruling). Accordingly, the prepayment provisions have no application to Growers that enter into those loans. 132. If a Grower chooses to prepay interest on a loan with Albany, that Grower may request a private ruling on how the prepayment provisions will affect the timing of their interest deduction. | CGT events and the forestry interests of Growers that are initial participants - sections 6-10, 10-5 and 394-25: 133. Section 6-10 includes in assessable income amounts that are not ordinary income. These amounts, called statutory income, are listed in the table in section 10-5, and include amounts that are included in the assessable income of initial participants of a forestry managed investment scheme by subsection 394-25(2). | Subsection 394-25(2): 134. Where a CGT event (other than for a CGT event that happens in respect of thinning [12] ) happens to a forestry interest held by a Grower in this Project, subsection 394-25(2) includes an amount in the assessable income of the Grower if the: | Market value rule applies to CGT events: 135. The Grower's assessable income for the income year in which the CGT event happens includes: 136. A market value rule applies, rather than the amount of money actually received being included in your assessable income, because of the CGT event (subsection 394-25(3)). However, the market value and the actual amount of money received may be the same. 137. Section 394-25 will apply where the forestry interest is sold, is extinguished, or ceases, and will include CGT events that arise upon a full or partial sale of the forestry interest or from a full or partial clear-fell Harvest of the Trees grown under the Project. | Amounts received by Growers for carbon or other environmental credits, and insurance proceeds - section 6-5: 138. Carbon and/or other environmental credit amounts and insurance proceeds received by a Grower in this Project do not arise as a result of a CGT event and are not otherwise assessable under Division 394. The receipt of such amounts is a distribution that arises as an incident of the Grower holding a forestry interest in the Project. Each amount is ordinary income and is assessable under section 6-5 in the year in which it is derived. | Deferral of losses from non-commercial business activities and the Commissioner's discretion - sections 35-10 and 35-55: 139. Based on information provided with the application for this Product Ruling, a Grower who is an individual and is accepted into the Project in the year ended 30 June 2022 and who carries on a business of forestry (alone or in partnership), is expected to incur losses from their participation in the Project which will be subject to Division 35. [13] These losses will be subject to the loss deferral rule in section 35-10 unless an exception applies or, for each income year in which losses are incurred, the Commissioner exercises the discretion in subsection 35-55(1) on 30 June of that specific income year. 140. The exceptions to the loss deferral rule depend upon the circumstances of individual Growers and are outside the scope of this Product Ruling. 141. The Commissioner will apply the principles set out in Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion when exercising the discretion. 142. Where a Grower with income for Division 35 purposes of less than $250,000 (that is, a Grower who satisfies the income requirement in subsection 35-10(2E)) incurs a loss in an income year from carrying on their business activity in a way that is not materially different to the scheme described in this Product Ruling, and the discretion in paragraph 35-55(1)(b) is exercised for that year, the Commissioner will be satisfied that: 143. Where a Grower with income for Division 35 purposes of $250,000 or more (that is, a Grower who does not satisfy the income requirement in subsection 35-10(2E)) incurs a loss in an income year from carrying on their business activity in a way that is not materially different to the scheme described in this Product Ruling, and the discretion in paragraph 35-55(1)(c) is exercised for that year, the Commissioner will be satisfied that: 144. A Grower will satisfy the income requirement in subsection 35-10(2E) where the sum of the following amounts is less than $250,000: 145. In each year in which the Commissioner's discretion is exercised as set out in either paragraph 142 or 143 of this Product Ruling in relation to the business carried on by a Grower, the Grower, who would otherwise be required to defer a loss arising from their participation in the Project under section 35-10 until a later income year, is able to offset that loss against their other assessable income. | Recouped expenditure - section 82KL of the ITAA 1936: 146. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of additional benefits. Insufficient additional benefits will be provided to trigger the application of section 82KL of the ITAA 1936. Section 82KL of the ITAA 1936 will not apply to deny the deduction otherwise allowable under section 8-1. | General anti-avoidance provisions - Part IVA of the ITAA 1936: 147. For Part IVA of the ITAA 1936 to apply, there must be a scheme (subsection 177A(1) of the ITAA 1936), a tax benefit (section 177C of the ITAA 1936) and a dominant purpose of entering into the scheme to obtain a tax benefit (subsections 177A(5) and 177D(1) of the ITAA 1936). 148. The W.A. Blue Gum Project 2022 will be a scheme and a Grower will obtain a tax benefit from entering into the scheme, in the form of tax deductions for the amounts detailed at paragraphs 26 and 35 to 37 of this Product Ruling 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. 149. Growers to whom this Product Ruling applies will derive assessable income from holding or disposing of their forestry interest in the Project. 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 Product 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 subsection 177D(2) of the ITAA 1936, it cannot be concluded, on the information available, that Growers will enter into the scheme for the dominant purpose of obtaining a tax benefit. © 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. | 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. | 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. | Date of effect: 11. This Product Ruling applies prospectively from 1 June 2022, the day it was published. It applies only to the specified class of entities that enter into the scheme from 1 June 2022 until 30 June 2022, being the closing date for entry into the scheme. This Product Ruling provides advice on the availability of tax benefits to the specified class of entities for the income years up to 30 June 2032, being its period of application. | 12. However, the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme. | Changes in the law: 13. Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect. | 14. Entities that are considering participating in the scheme are advised to confirm with their tax adviser that changes in the law have not affected this Product Ruling since it was issued. | Note to promoters and advisers: 15. Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention, the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued. | Goods and services tax: 16. All amounts and percentages referred to in this Product Ruling exclude the goods and services tax (GST) unless otherwise specified. The transactions in respect of this scheme may, where appropriate, have GST implications. Those GST implications are outside the scope of this Product Ruling. | 17. In order for 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. | Structure of the Project: 18. The W.A. Blue Gum Project 2022 is a forestry managed investment scheme as defined in subsection 394-15(1). Its purpose is the Establishment (by way of planting and/or Coppicing) and tending of Eucalyptus Globulus (Tasmanian Blue Gum) trees for felling in Australia. | 19. Although not relevant for the purposes of Division 394, Growers that enter into the Project will be carrying on an enterprise for the purposes of subsection 9-20(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), subject to the exclusions listed in subsection 9-20(2) of the GST Act. | 20. Although not relevant for the purposes of Division 394, a Grower that stays in the Project until it is completed will be considered to be carrying on a business of primary production. Such Growers who are individuals (whether carrying on that business alone or in partnership) will be subject to the operation of Division 35 (see paragraphs 42 to 45 and 139 to 145 of this Product Ruling). | Small business concessions: 21. A range of concessions are available to an entity if it carries on a business and satisfies the $10 million aggregated turnover test under Subdivision 328-C (a small business entity). [3] | 22. A small business entity can choose the concessions that best suit its needs. Eligibility for some small business concessions is also dependent on satisfying some additional conditions. Because of these choices and the eligibility conditions, the application of the small business concessions to Growers that qualify as a small business entity is not able to be dealt with in this Product Ruling other than as specified. | The 70% DFE rule and the Establishment of the Trees - section 394-35 and subsection 394-10(4): 23. On the basis of the information provided to the Commissioner by W.A. Blue Gum Limited, the Commissioner has decided that on 30 June 2022 it will be reasonable to expect that the '70% DFE rule' [4] will be satisfied. The ATO may undertake review activities during the term of the Project to verify the information relied on for the purposes of the 70% DFE rule. | 24. This Product Ruling will only apply if W.A. Blue Gum Limited Establishes all of the Trees that were intended to be Established under the Project within 18 months of the end of the income year in which an amount is first paid under the Project by a 'participant' in the Project. [5] For this Project, the Trees must be Established by 31 December 2023. | 25. In the context of this Project, the Trees will be Established when they are planted and/or Coppiced on the Land acquired for the purposes of the Project at the average rate of 900 Trees per hectare. W.A. Blue Gum Limited is required by section 394-10 of Schedule 1 to the Taxation Administration Act 1953 to notify the Commissioner if all of the Trees are not Established by 31 December 2023. | Sections 8-5, 394-10, 394-20 and paragraph 394-40(d): 26. A Grower in the Project can claim deductions for the amounts shown in the following table that are paid to W.A. Blue Gum Limited as the Responsible Entity for the Project (sections 8-5 and 394-10). | ($26,363.64 for the minimum of 5 forestry interests) | See Note 26(i) of this Product Ruling | ($750 for the minimum of 5 forestry interests) | See Notes 26(i) and (ii) of this Product Ruling | $2,454.55 for the minimum of 5 forestry interests) | See Notes 26(i) and (iii) of this Product Ruling | Harvesting, transportation and supervision fees | ** inclusive of GST and Indexed annually | See Note 26(iv) of this Product Ruling | 27. The deductibility of these amounts remains subject to a requirement that: | 28. The amount is deductible in the income year in which it is paid or is paid on behalf of the Grower (subsection 394-10(2) and section 394-20). This requires cash to flow from the Grower, or from another entity on the Grower's behalf, to W.A. Blue Gum Limited's bank account in the year in which the deduction is claimed. Any form of payment that does not involve the movement of cash into W.A. Blue Gum Limited's bank account will not qualify for a deduction under subsection 394-10(2). | 29. Where an amount is not fully paid by a Grower, or on their behalf, in an income year, the amount is deductible only to the extent to which it has been paid. Any unpaid amount is then deductible in the year or years in which it is actually paid. | 30. Amounts that are allowable deductions under Division 394 cannot also be claimed as deductions under section 8-1 (section 8-10). | CGT event within 4 years for Growers that are initial participants - subsections 394-10(5), 394-10(5A), 394-10(6) and section 394-25: 31. Deductions for the Establishment Fees, the tending fees, the Rent and the unforeseen expenses in relation to fertiliser and/or insect issues are not allowable where a CGT event happens in relation to the forestry interest of a Grower before 1 July 2026 (subsection 394-10(5)). | 32. Where deductions for these amounts have already been claimed by a Grower, the Commissioner may amend their assessment at any time within 2 years after the CGT event (subsection 394-10(6)). The Commissioner's power to amend in these circumstances applies despite section 170 of the ITAA 1936. | 33. Growers whose deductions are disallowed because of subsection 394-10(5) are still required by section 394-25 to include in assessable income the market value of the forestry interest at the time of the CGT event or any decrease in the market value of the forestry interest as a result of the CGT event. | 34. However, deductions will not be affected where the CGT event happens because of circumstances outside the Grower's control and the Grower could not reasonably have foreseen the CGT event happening when they acquired the forestry interest (subsection 394-10(5A)). | Interest on loans to finance the forestry interest, credit card merchant fees and fire insurance costs of a Grower - section 8-1: 35. Interest incurred by a Grower on a loan with Albany to fund their investment in the Project is deductible in the income year in which the interest is incurred provided the interest is not prepaid (subsection 8-1(1)). Growers that borrow from other financiers or that prepay their interest with Albany may apply for a private ruling on the deductibility of the interest incurred. | 36. Credit card merchant fees incurred by a Grower in paying any fees under the Project will be deductible under section 8-1. The deduction is allowable in the year in which the merchant fee is incurred. | 37. Fire insurance costs paid to the Responsible Entity are deductible under section 8-1 in the income year in which they are incurred. | CGT events and the forestry interests of Growers that are initial participants - sections 6-10, 17-5 and 394-25: 38. Where a CGT event (other than a CGT event that happens in respect of thinning [7] ) happens to a forestry interest held by a Grower in this Project, the market value of the forestry interest, or any decrease in the market value of the forestry interest, is included in the assessable income of the Grower (sections 6-10 and 394-25), less any GST payable on those proceeds (section 17-5). | 39. The relevant amount is included in the Grower's assessable income in the income year in which the CGT event happens (subsection 394-25(2)). | 40. CGT events for these purposes include those relating to: | Amounts received by Growers for carbon or other environmental credits and insurance proceeds - sections 6-5 and 17-5: 41. An amount received by a Grower in respect of sales of carbon or other environmental credits, or the receipt of insurance proceeds, constitutes ordinary income that arises as an incident of the Grower holding an interest in the Project. Growers should include their share of any such amounts received in their assessable income in the income year in which those amounts are derived (section 6-5), less any GST paid on those proceeds (section 17-5). | Deferral of losses from non-commercial business activities and annual exercise of Commissioner's discretion - Division 35: 42. For each of the income years ended 30 June 2022 to 30 June 2032, the Commissioner will exercise the discretion in subsection 35-55(1) for a Grower who is an individual (alone or in partnership) once the following conditions are satisfied for the year concerned: | 43. If the conditions in paragraph 42 of this Product Ruling are met for a given year, the Commissioner will exercise the discretion for that year under: | 44. If the Commissioner determines that the discretion will not be exercised for a particular year or years, the Grower will be informed of that decision and the reasons. In any year where the discretion is not exercised, losses incurred by a Grower will be subject to the loss deferral rule in section 35-10 and the Grower will not be able to offset the losses from the Project against other assessable income. | 45. The issue of this Product Ruling, of itself, does not constitute the exercise of the Commissioner's discretion in subsection 35-55(1) for any income year. | Prepayment provisions and anti-avoidance provisions - sections 82KZM, 82KZMA, 82KZMD, 82KZME, 82KZMF, 82KL and Part IVA of the ITAA 1936: 46. Where a Grower is accepted to participate in the Project described in paragraphs 47 to 95 of this Product Ruling, the following provisions of the ITAA 1936 have application as indicated: | 47. The scheme that is the subject of this Product Ruling 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. | 48. The documents bolded in paragraph 47 of this Ruling are those that a Grower may enter into. For the purposes of describing the scheme to which this Product 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 scheme. | 49. All Australian Securities and Investments Commission requirements are, or will be, complied with for the term of the agreements. | Overview: 50. The main features of the W.A. Blue Gum Project 2022 are: | In the southwest of Western Australia, between Bunbury and Albany | Species of Trees to be planted and/or Coppiced under the scheme | Eucalyptus Globulus (Tasmanian Blue Gum) | Date all Trees are due to be planted and/or Coppiced on scheme Land | Number of Trees per hectare | (approximately two-thirds of the Trees will be Established by way of Coppice) | Number of hectares offered for cultivation | Approximately 800, subject to land being available | Size of each forestry interest | Minimum allocation of forestry interests per Grower | $29,000 for the minimum allocation (GST-inclusive) | ($825 for the minimum allocation (GST-inclusive)) | Rent of $540 per forestry interest, Indexed annually (GST-inclusive) | ($2,700 for the minimum allocation (GST-inclusive)) | 51. The Project will be a registered managed investment scheme under the Corporations Act 2001. W.A. Blue Gum Limited has been issued with Australian Financial Services Licence No. 246264 and will be the Responsible Entity for the Project. | 52. The Project will involve the planting and growing of Tasmanian Blue Gums in the southwest region of Western Australia for the purpose of Harvest and sale of the Wood. | 53. An offer to participate in the Project will be made through the PDS. The offer under the PDS is for up to 800 hectares, which corresponds to 800 forestry interests in the Project. | 54. An entity that participates in the Project as a Grower will do so by acquiring a minimum of 5 forestry interests in the Project on or before 30 June 2022, each one hectare in size. | 55. Applicants execute a Power of Attorney contained in the PDS. The Power of Attorney irrevocably appoints W.A. Blue Gum Limited to enter into, on behalf of the Grower, an Agreement to Sub-lease (if relevant), a Sub-lease, a Project Management Contract, a Wood Purchase Agreement and a Loan Agreement (if applied for with Albany). | 56. For the purposes of this Product Ruling, Applicants that are accepted to participate in the Project and execute the Agreement to Sub-lease or the Sub-lease, the Project Management Contract and the Wood Purchase Agreement, on or before 30 June 2022, will become Growers in the Project. | 57. The Responsible Entity is currently seeking Land for the Project within the relevant geographic part of Australia. Land utilised by the Project must meet the requirements set out by the Independent Forestry Expert in the draft PDS referred to in paragraph 47 of this Product Ruling. | 58. The PDS advises that where the Land for the Project is not available on or before 30 June 2022, acceptance of Applications is subject to Land being acquired and a Sub-lease being entered into on behalf of the Grower by 30 September 2023. | Constitution for the W.A. Blue Gum Project 2022: 59. The Constitution for the Project establishes the Project and operates as a deed binding all Growers and W.A. Blue Gum Limited. The Constitution sets out the terms and conditions under which W.A. Blue Gum Limited agrees to act as Responsible Entity and thereby manage the Project. Upon acceptance into the Project, Growers are bound by the Constitution by virtue of their participation in the Project. | 60. In order to acquire an interest in the Project, an entity must make an Application for forestry interests in accordance with clause 4 of the Constitution. Among other things, the Application must be completed in a form approved by the Responsible Entity and accompanied by payment of the Application Money to the Responsible Entity. | 61. Under clause 6 of the Constitution, the Responsible Entity will open an Application Fund with an Australian bank or financial institution into which all Application Money received from Applicants will be deposited. | 62. Once the Responsible Entity has accepted the Application and issued an Interest to a Grower, an amount equal to the Application Money in the Application Fund will be transferred to the Responsible Entity or at the direction of the Responsible Entity (clause 6.4 of the Constitution). | 63. In summary, the Constitution also sets out provisions relating to: | Compliance Plan: 64. As required by the Corporations Act 2001, W.A. Blue Gum Limited as the Responsible Entity has prepared a Compliance Plan. The purpose of the Compliance Plan is to ensure the Responsible Entity manages the Project in accordance with its obligations and responsibilities contained in the Constitution and the interests of Growers are protected. | Project Management Contract: 65. In consideration of the Growers paying the fees set out in Schedule 2 to the Project Management Contract, W.A. Blue Gum Limited as Project Manager agrees to provide the Plantation Services to the Growers (clauses 3 and 14 of the Project Management Contract). | 66. The Fees payable under Schedule 2 to the Project Management Contract are: | 67. The Plantation Services to be provided by the Project Manager are set out at clause 4 and the Plantation Development and Tending Plan (at Schedule 1) of the Project Management Contract, and include: | 68. Clause 5 of the Project Management Contract explains that the term of the contract starts on the Commencement Date and terminates when the whole of the Plantation has been Harvested. | 69. Clause 7 of the Project Management Contract details that any insurance proceeds following fire or other damage to the Plantation will be pooled and distributed proportionally to affected Growers. | 70. Clause 11 of the Project Management Contract explains that Harvesting will be conducted in accordance with the Wood Purchase Agreement. | Plantation Services Agreement: 71. The Project Manager will engage Ents Forestry Pty Ltd as Forestry Contractor to carry out the Plantation Services required to Establish and tend the Plantation in accordance with the Plantation Development and Tending Plan. | Head leases: 72. The Responsible Entity will secure the Project Land by entering into a head lease or sub-lease (or a number of such leases) with lessors on or before 30 September 2023. | 73. Each Grower will execute a Sub-lease with W.A. Blue Gum Limited, as the Landholder, either at the time their Application is accepted or prior to 30 September 2023. | 74. The Schedule to the Sub-lease will identify the Leased Area, the Establishment Area, the Rent payable by the Grower, the commencement date of the Sub-lease, the Term of the Sub-lease and details of the relevant head lease or leases. | 75. The Grower shall reimburse the Landholder for stamp duty in respect of the Sub-lease (clause 9.11(b) of the Sub-lease). | 76. Carbon, environmental or other credits derived from the Plantation are the property of the Grower until the end of the Term (clause 9.17 of the Sub-lease). | 77. The Sub-lease can be terminated if the whole or a substantial part of the Plantation is damaged (for example, by fire) such that the Plantation is no longer commercially viable. Alternatively, if only part of the Plantation is destroyed, the Establishment Area will be reduced (clause 10 of the Sub-lease). | 78. Both the Landholder and the Grower shall be excused from performance of or liability under the Sub-lease if prevented by Force Majeure (clause 12 of the Sub-lease). | Agreement to Sub-lease: 79. Where there is no (or insufficient) Project Land available for a Grower on or before 30 June 2022, the Grower will be required to enter into an Agreement to Sub-lease with W.A. Blue Gum Limited. | 80. Pursuant to the terms of the Agreement to Sub-lease, the parties undertake to enter into a Sub-lease of the Land on or before 30 September 2023, which will allow the Establishment of the Plantation by 31 December 2023 in accordance with the Project Management Contract. | 81. This agreement is between the Growers, W.A. Blue Gum Limited, and W.A. Chip & Pulp Co. Pty Ltd as Purchaser. | 82. W.A. Blue Gum Limited and the Purchaser will agree on a Harvest Plan not less than 6 months out from the date on which the Purchaser requires Delivery of the Wood to commence. Not less than 2 months before Harvest, the Purchaser will give notice of the Proposed Purchase Price, including Harvest and Delivery costs. W.A. Blue Gum Limited may seek alternative pricing from third parties, but the Purchaser retains the right to match the price offered by the third parties. | Pooling of money from the Harvest of Wood and Grower's entitlement to a distribution: 83. Clause 7 of the Constitution provides that: | 84. This Product Ruling only applies where the following principles apply to the pooling and distribution arrangements: | Custody Agreement: 85. W.A. Blue Gum Limited, as the Responsible Entity, has engaged Sandhurst Trustees Limited to act as the Custodian of the Property. The Property includes all Application Money and Harvest Income until disbursed or distributed in accordance with the Constitution but does not include property legally vested in a Grower. | 86. Under the terms of the Project Management Contract and the Sub-lease, a Grower will make payments as described in paragraphs 87 to 90 of this Product Ruling on a per forestry interest basis. | Fees payable under the Project Management Contract: 87. The Application Money of $5,800 (GST-inclusive) is to be paid by each Grower on Application for the Establishment of the Plantation. | 88. Following the Application Year, the following ongoing fees and expenses are payable to W.A. Blue Gum Limited: | Fees payable under the Sub-lease: 89. Where the Sub-lease Commencement Date is on or before 30 June 2022, Rent for the period from the Sub-lease Commencement Date to 30 June 2022 will be nil. Rent of $540 (GST-inclusive) for the year ending 30 June 2023, Indexed from 30 June 2022, will be payable on 30 November 2022, and then Indexed annually for each subsequent year and payable on 30 September during the relevant year (clause 6 and Schedule 1 of the Sub-lease). | 90. Where the Sub-lease Commencement Date is after 30 June 2022, Rent for the period from the Sub-lease Commencement Date to 30 June 2023 will be nil. Rent of $540 (GST-inclusive) for the year ending 30 June 2024, Indexed from 30 June 2022, will be payable on 30 November 2023, and then Indexed annually for each subsequent year and payable on 30 September during the relevant year (clause 6 and Schedule 1 of the Sub-lease). | 91. To finance all or part of the cost of their forestry interest a Grower can enter into a finance arrangement with Albany or, alternatively, borrow from an independent lender external to the Project. | 92. Only the finance arrangement set out in paragraph 94 of this Product Ruling is covered by this Product Ruling. A Grower cannot rely on this Product Ruling if they enter into a finance arrangement with Albany that materially differs from that set out in the documentation provided with the application for this Product Ruling. A Grower that enters into a finance arrangement with an independent lender external to the Project may request a private ruling on the deductibility or otherwise of interest incurred under finance arrangements not covered by this Product Ruling. | 93. A Grower cannot rely on any part of this Product Ruling if the Application Monies are not paid in full on or before 30 June 2022 by the Grower or, on the Grower's behalf, by a lending institution. | Finance offered by Albany Financial Pty. Ltd.: 94. Subject to Albany accepting the Grower's Application, the Grower will be bound by the terms and conditions of the Loan Agreement, which include: | Other qualifications relating to finance: 95. This Product Ruling does not apply if the finance arrangement entered into by the Grower includes or has any of the following features: | Commissioner of Taxation 1 June 2022 | The question whether an outgoing was ... 'incurred in gaining or producing the assessable income' is a question of characterization. ... | To the extent that ... outgoings of interest ... can properly be characterized as of a kind referred to in the first limb of [section 8-1], they must draw their character from the use of the borrowed funds. | [T]he characterisation of interest borrowed will generally be ascertained by reference to the objective circumstances of the use to which the borrowed funds are put. | ... interest [is] periodic payments for the use, but not the permanent acquisition, of a capital item. Therefore, a consideration of the often-cited three matters identified by Dixon J. in Sun Newspapers Limited v Federal Commissioner of Taxation ... assigns interest ... to revenue.


Related rulings: TR 97/7 TR 97/11 TR 98/22 TR 2007/6 MT 2006/1
Legislative references: ITAA 1936 Pt III Div 3 Subdiv H ITAA 1936 82KL ITAA 1936 82KZL ITAA 1936 82KZM ITAA 1936 82KZMA ITAA 1936 82KZMD ITAA 1936 82KZME ITAA 1936 82KZMF ITAA 1936 170 ITAA 1936 Pt IVA ITAA 1936 177A(1) ITAA 1936 177A(5) ITAA 1936 177C ITAA 1936 177D(1) ITAA 1936 177D(2) ITAA 1936 318 ITAA 1997 6-5 ITAA 1997 6-10 ITAA 1997 8-1 ITAA 1997 8-1(1) ITAA 1997 8-1(1)(a) ITAA 1997 8-1(1)(b) ITAA 1997 8-1(2) ITAA 1997 8-1(2)(a) ITAA 1997 8-5 ITAA 1997 8-10 ITAA 1997 10-5 ITAA 1997 12-5 ITAA 1997 17-5 ITAA 1997 Div 35 ITAA 1997 35-10 ITAA 1997 35-10(2) ITAA 1997 35-10(2C) ITAA 1997 35-10(2E) ITAA 1997 35-30 ITAA 1997 35-35 ITAA 1997 35-40 ITAA 1997 35-45 ITAA 1997 35-55 ITAA 1997 35-55(1) ITAA 1997 35-55(1)(b) ITAA 1997 35-55(1)(c) ITAA 1997 Subdiv 328-C ITAA 1997 Div 394 ITAA 1997 394-10 ITAA 1997 394-10(1) ITAA 1997 394-10(1)(a) ITAA 1997 394-10(1)(b) ITAA 1997 394-10(1)(c) ITAA 1997 394-10(1)(d) ITAA 1997 394-10(1)(e) ITAA 1997 394-10(1)(f) ITAA 1997 394-10(2) ITAA 1997 394-10(4) ITAA 1997 394-10(5) ITAA 1997 394-10(5A) ITAA 1997 394-10(6) ITAA 1997 394-10(7) ITAA 1997 394-15(1) ITAA 1997 394-15(2) ITAA 1997 394-15(3) ITAA 1997 394-15(4) ITAA 1997 394-15(5) ITAA 1997 394-20 ITAA 1997 394-25 ITAA 1997 394-25(1) ITAA 1997 394-25(2) ITAA 1997 394-25(3) ITAA 1997 394-35 ITAA 1997 394-35(1) ITAA 1997 394-35(2) ITAA 1997 394-35(3) ITAA 1997 394-35(4) ITAA 1997 394-35(5) ITAA 1997 394-35(6) ITAA 1997 394-35(7) ITAA 1997 394-35(8) ITAA 1997 394-40 ITAA 1997 394-40(d) ITAA 1997 394-45 TAA 1953 Sch 1 394-10 ANTS(GST)A 1999 9-20 ANTS(GST)A 1999 9-20(1) ANTS(GST)A 1999 9-20(1)(a) ANTS(GST)A 1999 9-20(2) ANTS(GST)A 1999 23-10 Corporations Act 2001 SISA 1993
Case references: Australian National Hotels Ltd v Commissioner of Taxation [1988] FCA 470 19 FCR 234 88 ATC 4627 19 ATR 1575 81 ALR 667