Product Ruling PR 2007/75
Date of effect: 22 August 2007

What this ruling is about: 1. This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provision(s) identified in the Ruling section (below) apply to the defined class of entities, who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated. In this Product Ruling this scheme is referred to as the 'Gunns Plantations Limited Winegrape Project 2007 - Late Growers' or simply as 'the Project'. Class of entities 2. This part of the Product Ruling specifies which entities can rely on the tax benefits set out in the Ruling section of this Product Ruling and which entities cannot rely on those tax benefits. In this Product Ruling, those entities that can rely on the tax benefits set out in this Ruling are referred to as Growers. 3. The class of entities who can rely on those tax benefits consists of entities that are accepted to participate in the scheme specified below on or after the date this Product Ruling is made and which execute relevant Project Agreements mentioned in paragraph 19 of this Ruling on or before 15 June 2008. They must 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. 4. The class of entities who can rely on the tax benefits set out in the Ruling section of this Product Ruling does not include entities who: Superannuation Industry (Supervision) Act 1993 5. This Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA 1993). The Tax Office gives no assurance that the product 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 product may contravene the provisions of SISA 1993. Qualifications 6. 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 paragraph 31 to 77 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 8. 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: 2. This part of the Product Ruling specifies which entities can rely on the tax benefits set out in the Ruling section of this Product Ruling and which entities cannot rely on those tax benefits. In this Product Ruling, those entities that can rely on the tax benefits set out in this Ruling are referred to as Growers. 3. The class of entities who can rely on those tax benefits consists of entities that are accepted to participate in the scheme specified below on or after the date this Product Ruling is made and which execute relevant Project Agreements mentioned in paragraph 19 of this Ruling on or before 15 June 2008. They must 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. 4. The class of entities who can rely on the tax benefits set out in the Ruling section of this Product Ruling does not include entities who: | Superannuation Industry (Supervision) Act 1993: 5. This Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA 1993). The Tax Office gives no assurance that the product 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 product may contravene the provisions of SISA 1993. | Qualifications: 6. 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 paragraph 31 to 77 of this Ruling. 7. If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: 8. 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: 9. This Product Ruling applies prospectively from 22 August 2007, the date this Product Ruling is made. It therefore applies only to the specified class of entities that enter into the scheme from 22 August 2007 until 15 June 2008, 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 2010. This Product Ruling will continue to apply to those entities even after its period of application for schemes entered into during the period of application. 10. However the Product Ruling only applies to the extent that: 11. If this Product Ruling is inconsistent with a later public or private ruling, the relevant class of entities may rely on either ruling which applies to them (item 1 of subsection 357-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA)). 12. If this Product Ruling is inconsistent with an earlier private ruling, the private ruling is taken not to have been made if, when the Product Ruling is made, the following two conditions are met: 13. If the above two conditions do not apply, the relevant class of entities may rely on either ruling which applies to them (item 3 of subsection 357-75(1) of Schedule 1 to the TAA). | Changes in the law: 14. Although this Product Ruling deals with the laws enacted at the time it was issued, later amendments to the law may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to the extent of those amendments this Product Ruling will be superseded. 15. Entities who are considering participating in the scheme 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: 16. 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 Tax Office suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling is issued. | Goods and Services Tax: 17. All fees and expenditure referred to in this Product 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. | Application of this Ruling: 18. Subject to the stated qualifications in paragraph 4 of this Ruling, this part of the Product Ruling sets out in detail the taxation obligations and benefits for a Grower in the defined class of entities who enters into the scheme described in paragraph 31 to 77 of this Ruling. 19. The Grower's participation in the Project must constitute the carrying on of business of primary production. Provided the Project is carried out as described below, the Grower's business of primary production will commence at the time of execution of their 'Management Agreement' and their 'Vine Right Agreement'. 20. 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. | Small business concessions: 21. From the 2007-08 income year, a range of concessions previously available under the Simplified Tax System (STS), will be available to an entity if it carries on a business and satisfies the $2 million aggregated turnover test (a 'small business entity'). 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. Accordingly unless otherwise stated, application of the small business concessions to Growers who qualify as a 'small business entity' is not able to be dealt with in this Ruling. | Sections 6-5 and 17-5: 23. That part of the 'Gross Proceeds Entitlement' 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. Growers should note that the retention of the 'Gross Proceeds Entitlement' by Gunns Plantations Ltd (GPL) in any income year constitutes a receipt of assessable income by the Grower. The retention of the 'Gross Proceeds Entitlement' may occur if there is a Harvest in the year ending 30 June 2009 and 30 June 2010. In those income years GPL proposes to offset that assessable income against fees otherwise payable. | Sections 8-1 and 25-25 and Division 27 of the ITAA 1997 and sections 82KZME and 82KZMF of the Income Tax Assessment Act 1936: 24. A Grower may claim tax deductions on a per 'Vinelot' basis, as set out in the Table below. | Division 40: 25. A Grower who is not a 'small business entity' will also be entitled to tax deductions relating to vineguards, water facilities (for example, irrigation), a 'landcare operation' and grapevines. All deductions shown in the following Table are determined under Division 40. | Subdivisions 40-F, 40-G and 328-D: 26. A Grower who is a 'small business entity' will also be entitled to tax deductions relating to vineguards, water facilities (for example, irrigation), a 'landcare operation' and grapevines. Deductions relating to the 'cost' of vineguards must be determined under Division 328. A 'small business entity' may claim deductions in relation to water facilities under Subdivision 40-F and in relation to a 'landcare operation' under Subdivision 40-G. If the 'water facility' or 'landcare operation' expenditure is on a 'depreciating asset' used to carry on the business, they may choose to claim deductions under Division 328. Deductions for the grapevines must be determined under Subdivision 40-F. 27. The deductions shown in the following Table assume, for representative purposes only, that a Grower has either chosen to or can only claim deductions for expenditure on water facilities or a 'landcare operation' under Subdivisions 40-F or 40-G and not under Division 328. If the expenditure has been incurred on 'depreciating assets' and is claimed under Division 328, the deduction is determined as discussed in Notes (xvi) and (xviii) below. 28. Under Division 328, if the 'cost' of a 'depreciating asset' at the end of the income year is less than $1,000 (a 'low-cost asset'), it can be claimed as an immediate deduction when first used or 'installed ready for use'. This is so provided the Grower is a 'small business entity' for the income year in which it starts to 'hold' the asset and the income year in which it first uses the asset or has it 'installed ready for use' to produce assessable income. | Section 35-55 - exercise of Commissioner's discretion: 29. A Grower who is an individual accepted into the Project by 15 June 2008 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 Growers for the income years ended 30 June 2008 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. | Section 82KL and Part IVA: 30. For a Grower who commences participation in the Project and incurs expenditure as required by the 'Management Agreement' and the 'Vine Right Agreement', the following provisions of the ITAA 1936 have application as indicated: 31. 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. 32. The documents highlighted are those that a Grower may enter into. For the purposes of describing the scheme 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 scheme. The effect of these agreements is summarised as follows. 33. All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. | Overview: 34. The main features of the 'Gunns Plantations Limited Winegrape Project 2007 - Late Growers' are as follows: 35. The Project is registered as a managed investment scheme under the Corporations Act 2001 . GPL has been issued with an Australian Financial Service Licence, Number 238701, and will be the Responsible Entity for the Project. There is no minimum amount that must be raised under the PDS. 36. The offer to which this Product Ruling applies is for participation in a Project consisting of no more than 600 'Vinelots' situated on approximately 120 hectares of a property called 'Coombend' in Eastern Tasmania. Each 'Vinelot' will contain approximately 485 grape vines. 37. To participate in the Project applicants must complete the Application and Power of Attorney Form in the Product Disclosure Statement (PDS) on or before 15 June 2008 and pay the 'Application Fee' to the Custodian. The 'Application Fee' will be banked into the relevant 'Applications Portion'. These monies will be released to GPL when certain specified criteria have been met in accordance with clauses 7 and 8 of the Constitution. 38. Each Grower will enter into a 'Vine Right Agreement' with GPL. The 'Vine Right Agreement' will comprise contractual rights in relation to a parcel of land of 0.20 hectares called a 'Vinelot', 0.14 of which will be situated within the 'New Vineyard', on which the 'Vines' will be planted before 31 December 2008, and 0.06 hectares of fully established vines situated within the 'Existing Vineyard', which will be completed prior to January 2008. 39. Each Grower will enter into a 'Management Agreement' to contract with GPL as the 'Manager', to undertake the 'Initial Services' and the 'Additional Services'. GPL will also provide 'Maintenance and Harvest Services', and arrange to market and sell the Grower's 'Grapes'. 40. GPL will appoint Gunns Limited as subcontractor to perform the 'Initial Services' and 'Additional Services' and the 'Maintenance and Harvest Services' under the terms of the 'Initial and Additional Services Sub-contracting Agreement', and the 'Maintenance and Harvest Sub-contracting Agreement'. 41. For the purposes of this Ruling, Applicants who are accepted to participate in the Project and who execute the 'Vine Right Agreement' and 'Management Agreement' on or before 15 June 2008 will become 'Late Growers'. 42. Note that a separate Product Ruling PR 2006/164 has issued for 'Early Growers' who are accepted into the Project on or before 15 June 2007 . | Constitution: 43. The Constitution for the Project sets out the general functions, powers and duties under which GPL agrees to act for the Growers and to manage the Project. The 'Vine Right Agreement' and the 'Management Agreement' are Schedules to the Constitution. These Agreements will be executed by GPL on behalf of each Grower who has signed the 'Application and Power of Attorney Form' attached to the PDS and who is accepted into the Project on or before 15 June 2008. 44. After acceptance and execution of the Agreements, Growers are bound by the Constitution by virtue of their participation in the Project. 45. Upon acceptance of an application, GPL will allocate the 'Vinelot'(s) to the Grower and prepare the 'Vine Right Agreement' and 'Management Agreement' in accordance with clause 6. 46. Before authorising or instructing the Custodian to release the 'Application Money', GPL must be satisfied among other things that: 47. GPL is entitled to receive fees according to clause 11 and may instruct the Custodian to invest all or part of the 'Proceeds Portion' and 'Application Portion' according to clause 12. 48. Among other things the Constitution sets out in detail the following: | Compliance Plan: 49. As required by the Corporations Act 2001 , GPL has prepared a Compliance Plan. The purpose of the Compliance Plan is to ensure that GPL manages the Project in accordance with its obligations and responsibilities contained in the Constitution and that the interests of Growers are protected. | Lease Agreements: 50. Gunns Limited (the 'Landowner'), is the registered proprietor of the 'Land' on which both the 'Existing Vineyard' is established and the 'New Vineyard' will be established. The Landowner has agreed to grant to GPL a 'Lease' of the 'Land', together with all the rights described in clauses 3.2 and 4, for the 'Term' of the Project. 51. A lease has already been registered over some of the Land and a variation will be prepared extending the term of the lease for the length of the Project. A new lease over the remaining Land will also be registered against the relevant titles. | 'Vine Right Agreement': 52. Growers participating in the Project will enter into a 'Vine Right Agreement' with GPL for the 'Term' of the Project. The grant of the 'Vine Right' and the rights and obligations of the Grower and of GPL are set out in Clauses 4 and 5. These include: 53. The Landowner will, in the event of destruction or serious fault, replace all 'Vineyard Infrastructure' necessary for carrying out the Project, clause 5.1(b)(1). 54. In the event of destruction or death of the 'Vines', the Landowner will replant for the 'Term' (as close as is practically possible to 100% of the average initial planting density of the 'Developed Area') all 'Vines' necessary for carrying out the Project (clause 5.1(b)(3)) but subject to the condition at clause 8 (see paragraph 55 of this Ruling). 55. At any time after the second anniversary of the 'Date of Commencement', if 95% of the 'Vines' are destroyed or materially damaged by fire or any other cause, then GPL may terminate this agreement by notice in writing to each Grower, clause 8. | 'Management Agreement': 56. Under the 'Management Agreement' entered into between GPL, as 'Manager' and each Grower, GPL is appointed to perform the 'Services' in respect of each Grower's 'Vinelot' and to act as sole agent to market, enter into negotiations and sell the Harvested Grapes on the Grower's behalf. 57. In consideration for the 'Initial Services Fee' GPL must use its best endeavours to complete all of the 'Initial Services' in relation to each Grower's 'Vinelot' before 30 June 2008, clause 4 and clause 9.1. The 'Initial Services' described in clause 4 consist of some capital works on the 'New Vineyard', maintenance and recurrent services on both the 'New Vineyard' and the 'Existing Vineyard', and certain administrative services. 58. GPL must also complete all of the following 'Additional Services' in relation to each Grower's 'Vinelot', clause 5A: 59. Payment of the 'Application Fee' constitutes full payment of the fees relating to the 'Initial Services' and the 'Additional Services'. 60. In consideration for an annual 'Maintenance and Harvest Fee' GPL will carry out the ongoing 'Maintenance and Harvest Services' during the Term of the Project, clause 5.2 and clause 9.3. The Manager warrants to the Grower that it has access to such staff, personnel, consultants and other specialists' services as necessary to perform the 'Maintenance and Harvest Services', clause 5.1. 61. Each Grower appoints GPL as their sole agent to market, enter into negotiations and sell the 'Grapes' at a fair and reasonable price taking into account certain factors listed at clause 11(b). 62. GPL will be responsible for insuring the 'Vineyard' against public risk. If requested in writing by the Grower, GPL will endeavour to procure for the Grower insurance cover against destruction or damage of the Grower's 'Grapes'. If GPL is able to effect insurance as requested, GPL will invoice the Grower for the relevant premium together with an administration charge of 10% of the amount of the premium in each 'Year' of the 'Term'. For each Grower that does obtain such insurance, and subsequently makes a successful claim in relation to the policy, 35% of the insurance proceeds must be paid to GPL in satisfaction of the 'Ongoing Fees' for that 'Vinelot', clause 13. 63. Any Grower who suffers financial hardship at any time after the fourth anniversary of the 'Date of Commencement' may apply to GPL to pay on the Grower's behalf all 'Ongoing Fees' payable by the Grower under the 'Management Agreement', clause 16. | Pooling of 'Grapes' and distribution of proceeds: 64. The Constitution and the 'Management Agreement' set out provisions relating to the pooling of the Growers 'Grapes', the determination of the 'Gross Proceeds Entitlement' and the distribution of proceeds from the 'Fund'. This Product Ruling only applies where the following principles apply to those pooling and distribution arrangements: | Fees payable under the 'Management Agreement': 65. For the year ended 30 June 2008 part of the 'Application Fee' of $17,325 per 'Vinelot' payable on Application will be applied as follows: 66. In the event of a 'Harvest' in the year ended 30 June 2009, the Grower will incur a 'Year 1 Harvest Fee' equal to the cost of performing the Harvest, plus a 21% mark-up, clause 9.2. 67. Each Grower will also make the following additional 'Maintenance and Harvest Fee' payments per 'Vinelot': | Fees payable under the 'Vine Right Agreement': 68. Under clause 6 of the 'Vine Right Agreement' each Grower will make the following 'Vine Right Fee' payment per 'Vinelot': | Finance: 69. A Grower who does not pay the 'Application Fee' in full upon application can fund their involvement in the Project as follows: 70. Other than where payment is made under a Terms Arrangement with GPL, Growers cannot rely on any part of this Ruling if the 'Application Fee' is not paid in full on or before 15 June 2008 by the Grower or, on the Grower's behalf by a lending institution. Where an application is accepted subject to finance approval by any lending institution other than Gunns Finance, Growers cannot rely on this Ruling if written evidence of that approval has not been given to the Responsible Entity by the lending institution on or before 15 June 2008. 71. Only the finance arrangements set out below are covered by this Product Ruling. A Grower cannot rely on this Product Ruling if they enter into a finance arrangement with Gunns Finance or with Allco that materially differs from those set out in the documentation provided to the Tax Office with the application for this Product Ruling and summarised below. A Grower who 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 that are not covered by this Product Ruling. 72. This Ruling only applies to loans for the 'Application Fee'. It does not apply to any additional loans, or 'Further Loan Amounts' made to Borrowers by Gunns Finance or by Allco. | Terms Arrangement: 73. If GPL accepts payment of the 'Application Fee' under a Terms Arrangement the Grower must complete a terms application and a Direct Debit Authority. The Grower will be required to pay their 'Application Fee', as follows: | Loans from Gunns Finance: 74. The loans offered by Gunns Finance are Principal and Interest loans with a term of 3, 5, 10 or 15 years. Features of the finance packages are: | Loans from Allco: 75. Allco offers 3 different loans: 76. Common features contained in each of these loans are that: | General qualifications to finance arrangements: 77. This Ruling does not apply if the finance arrangement entered into by the Grower includes or has any of the following features: Commissioner of Taxation 22 August 2007 | Is the Grower carrying on a business?: 78. For the amounts set out in paragraph 24 of this Ruling to constitute allowable deductions the Grower's viticulture activities as a participant in the Gunns Plantations Ltd Winegrape Project 2007 must amount to the carrying on of a business of primary production. 79. Two Taxation Rulings are relevant in determining whether a Grower will be carrying on a business of primary production. 80. The general indicators used by the Courts are set out in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? 81. Taxation Ruling TR 2000/8 Income tax: investment schemes, particularly paragraph 89, is more specific to arrangements such as the Gunns Plantations Ltd Winegrape Project 2007. As Taxation Ruling TR 2000/8 sets out, the relevant principles have been established in court decisions such as Commissioner of Taxation v. Lau (1984) 6 FCR 202; 84 ATC 4929; (1984) 16 ATR 55. 82. Having applied these principles to the arrangement set out above, a Grower in the Gunns Plantations Ltd Winegrape Project 2007 is accepted to be carrying on a business of growing and harvesting wine grapes for sale. | Divisions 40 and 328: 83. Any part of the expenditure if 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 trellising, vineguards, water facilities, a 'landcare operation', and the establishment of the grapevines is of a capital nature. This expenditure falls for consideration under Division 40 or Division 328. 84. The application and extent to which a Grower claims deductions under Division 40 and Division 328 depends on whether or not the Grower is a 'small business entity'. 85. The tax treatment of capital expenditure has been dealt with in a representative way in paragraphs 25 and 28 of this Ruling in the Table(s) and accompanying notes. | Section 8-1: 86. That part of the 'Initial Services Fee' identified in the Table at paragraph 24 of this Ruling, the whole of the 'Maintenance and Harvest Fee', and the whole of the 'Vine Right Fee' are deductible under section 8-1 (see paragraphs 43 and 44 of TR 2000/8). A 'non-income producing' purpose (see paragraphs 47 and 48 of TR 2000/8) is not identifiable in the arrangement and, apart from the landcare component of the 'Initial Services Fee', there is no other capital component evident in these fees (see paragraphs 49 to 51 of TR 2000/8). 87. The tests of deductibility under the first limb of section 8-1 are met. The exclusions do not apply. Subject to the application of the prepayment provisions (see paragraphs 90 to 97 of this Ruling) a deduction for these amounts can be claimed in the year in which they are incurred. (Note: the meaning of incurred is explained in Taxation Ruling TR 97/7.) 88. Some Growers may finance their participation in the Project through a Loan Agreement with either Gunns Finance or Allco. Applying the same principles as that used for the 'Initial Services Fee', the 'Maintenance and Harvest Fee', and the 'Vine Right Fee', interest incurred under such a loan has sufficient connection with the gaining of assessable income to be deductible under section 8-1. 89. Other than where the prepayment provisions apply (see paragraphs 90 to 96 of this Ruling), a Grower can claim a deduction for such interest in the year in which it is incurred. | Sections 82KZL to 82KZMF: 90. 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. 91. For this Project, the only prepayment provisions that are relevant are section 82KZL of the ITAA 1936 (an interpretive provision) and sections 82KZME and 82KZMF of the ITAA 1936 (operative provisions). | Application of the prepayment provisions to this Project: 92. Under the scheme to which this Product Ruling applies the part of the 'Initial Services Fee' identified in the Table at paragraph 24 of this Ruling is incurred on or before 15 June 2008 for services to be wholly done by 30 June 2008, and the interest payable to Gunns Finance or Allco under the loans summarised at paragraphs 74 to 76 of this Ruling is incurred monthly in arrears. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this expenditure. 93. However, that part of the 'Application Fee' representing the 'Maintenance and Harvest Fee', and that part representing the 'Vine Right Fee' is expenditure for things that will not be wholly done within the same year of income as the year in which the expenditure is incurred. 94. For this expenditure the requirements of section 82KZME of the ITAA 1936 are met, and, therefore, unless one of the exceptions to section 82KZME applies, the amount and timing of tax deductions for those fees are determined under section 82KZMF of the ITAA 1936. Section 82KZMF uses the formula below, to apportion prepaid expenditure and allow a deduction over the period that the benefits are provided. Expenditure * [Number of days of eligible service period in the year of income / Total number of days of eligible service period] 95. In the formula, 'eligible service period' (defined in subsection 82KZL(1) of the ITAA 1936) means the period during which the thing under the agreement is to be done. The eligible service period begins on the day on which the thing under the agreement commences to be done or on the day on which the expenditure is incurred, whichever is the later, and ends on the last day on which the thing under the agreement ceases to be done, up to a maximum of 10 years. 96. The prepaid 'Maintenance and Harvest Fee' and 'Vine Right Fee' incurred by each Grower do not fall within any of the five exceptions to section 82KZME of the ITAA 1936. Therefore, the deduction for each year is determined using the formula in subsection 82KZMF(1) of the ITAA 1936. Section 82KZMF apportions the deduction for prepaid 'Maintenance and Harvest Fee' and 'Vine Right Fee' over the period that the services for which the prepayment is made are provided. 97. As noted in the Ruling section above, Growers who prepay other fees or who prepay 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. | Sections 35-10 and 35-55 - deferral of losses from non-commercial business activities and the Commissioner's discretion: 98. In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the years ending 30 June 2008 to 30 June 2011 , the Commissioner has applied the principles set out in Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion. Accordingly, based on the evidence supplied, the Commissioner has determined that for those income years: 99. A Grower who would otherwise be required to defer a loss arising from their participation in the Project under subsection 35-10(2) until a later income year is able to offset that loss against their other assessable income. 100. 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: 101. 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 of the ITAA 1936. It will not apply to deny the deduction otherwise allowable under section 8-1 of the ITAA 1997. | Part IVA - general tax avoidance provisions: 102. 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). 103. The Gunns Plantations Ltd Winegrape Project 2007 - Late Growers 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 24 to 27 of this 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. 104. 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 wine grapes. 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. 105. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 18. Subject to the stated qualifications in paragraph 4 of this Ruling, this part of the Product Ruling sets out in detail the taxation obligations and benefits for a Grower in the defined class of entities who enters into the scheme described in paragraph 31 to 77 of this Ruling. 19. The Grower's participation in the Project must constitute the carrying on of business of primary production. Provided the Project is carried out as described below, the Grower's business of primary production will commence at the time of execution of their 'Management Agreement' and their 'Vine Right Agreement'. 20. 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. | Small business concessions: 21. From the 2007-08 income year, a range of concessions previously available under the Simplified Tax System (STS), will be available to an entity if it carries on a business and satisfies the $2 million aggregated turnover test (a 'small business entity'). 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. Accordingly unless otherwise stated, application of the small business concessions to Growers who qualify as a 'small business entity' is not able to be dealt with in this Ruling. | Sections 6-5 and 17-5: 23. That part of the 'Gross Proceeds Entitlement' 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. Growers should note that the retention of the 'Gross Proceeds Entitlement' by Gunns Plantations Ltd (GPL) in any income year constitutes a receipt of assessable income by the Grower. The retention of the 'Gross Proceeds Entitlement' may occur if there is a Harvest in the year ending 30 June 2009 and 30 June 2010. In those income years GPL proposes to offset that assessable income against fees otherwise payable. | Sections 8-1 and 25-25 and Division 27 of the ITAA 1997 and sections 82KZME and 82KZMF of the Income Tax Assessment Act 1936: 24. A Grower may claim tax deductions on a per 'Vinelot' basis, as set out in the Table below. | Division 40: 25. A Grower who is not a 'small business entity' will also be entitled to tax deductions relating to vineguards, water facilities (for example, irrigation), a 'landcare operation' and grapevines. All deductions shown in the following Table are determined under Division 40. | Subdivisions 40-F, 40-G and 328-D: 26. A Grower who is a 'small business entity' will also be entitled to tax deductions relating to vineguards, water facilities (for example, irrigation), a 'landcare operation' and grapevines. Deductions relating to the 'cost' of vineguards must be determined under Division 328. A 'small business entity' may claim deductions in relation to water facilities under Subdivision 40-F and in relation to a 'landcare operation' under Subdivision 40-G. If the 'water facility' or 'landcare operation' expenditure is on a 'depreciating asset' used to carry on the business, they may choose to claim deductions under Division 328. Deductions for the grapevines must be determined under Subdivision 40-F. 27. The deductions shown in the following Table assume, for representative purposes only, that a Grower has either chosen to or can only claim deductions for expenditure on water facilities or a 'landcare operation' under Subdivisions 40-F or 40-G and not under Division 328. If the expenditure has been incurred on 'depreciating assets' and is claimed under Division 328, the deduction is determined as discussed in Notes (xvi) and (xviii) below. 28. Under Division 328, if the 'cost' of a 'depreciating asset' at the end of the income year is less than $1,000 (a 'low-cost asset'), it can be claimed as an immediate deduction when first used or 'installed ready for use'. This is so provided the Grower is a 'small business entity' for the income year in which it starts to 'hold' the asset and the income year in which it first uses the asset or has it 'installed ready for use' to produce assessable income. | Section 35-55 - exercise of Commissioner's discretion: 29. A Grower who is an individual accepted into the Project by 15 June 2008 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 Growers for the income years ended 30 June 2008 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. | Section 82KL and Part IVA: 30. For a Grower who commences participation in the Project and incurs expenditure as required by the 'Management Agreement' and the 'Vine Right Agreement', the following provisions of the ITAA 1936 have application as indicated: 31. 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. 32. The documents highlighted are those that a Grower may enter into. For the purposes of describing the scheme 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 scheme. The effect of these agreements is summarised as follows. 33. All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. | Overview: 34. The main features of the 'Gunns Plantations Limited Winegrape Project 2007 - Late Growers' are as follows: 35. The Project is registered as a managed investment scheme under the Corporations Act 2001 . GPL has been issued with an Australian Financial Service Licence, Number 238701, and will be the Responsible Entity for the Project. There is no minimum amount that must be raised under the PDS. 36. The offer to which this Product Ruling applies is for participation in a Project consisting of no more than 600 'Vinelots' situated on approximately 120 hectares of a property called 'Coombend' in Eastern Tasmania. Each 'Vinelot' will contain approximately 485 grape vines. 37. To participate in the Project applicants must complete the Application and Power of Attorney Form in the Product Disclosure Statement (PDS) on or before 15 June 2008 and pay the 'Application Fee' to the Custodian. The 'Application Fee' will be banked into the relevant 'Applications Portion'. These monies will be released to GPL when certain specified criteria have been met in accordance with clauses 7 and 8 of the Constitution. 38. Each Grower will enter into a 'Vine Right Agreement' with GPL. The 'Vine Right Agreement' will comprise contractual rights in relation to a parcel of land of 0.20 hectares called a 'Vinelot', 0.14 of which will be situated within the 'New Vineyard', on which the 'Vines' will be planted before 31 December 2008, and 0.06 hectares of fully established vines situated within the 'Existing Vineyard', which will be completed prior to January 2008. 39. Each Grower will enter into a 'Management Agreement' to contract with GPL as the 'Manager', to undertake the 'Initial Services' and the 'Additional Services'. GPL will also provide 'Maintenance and Harvest Services', and arrange to market and sell the Grower's 'Grapes'. 40. GPL will appoint Gunns Limited as subcontractor to perform the 'Initial Services' and 'Additional Services' and the 'Maintenance and Harvest Services' under the terms of the 'Initial and Additional Services Sub-contracting Agreement', and the 'Maintenance and Harvest Sub-contracting Agreement'. 41. For the purposes of this Ruling, Applicants who are accepted to participate in the Project and who execute the 'Vine Right Agreement' and 'Management Agreement' on or before 15 June 2008 will become 'Late Growers'. 42. Note that a separate Product Ruling PR 2006/164 has issued for 'Early Growers' who are accepted into the Project on or before 15 June 2007 . | Constitution: 43. The Constitution for the Project sets out the general functions, powers and duties under which GPL agrees to act for the Growers and to manage the Project. The 'Vine Right Agreement' and the 'Management Agreement' are Schedules to the Constitution. These Agreements will be executed by GPL on behalf of each Grower who has signed the 'Application and Power of Attorney Form' attached to the PDS and who is accepted into the Project on or before 15 June 2008. 44. After acceptance and execution of the Agreements, Growers are bound by the Constitution by virtue of their participation in the Project. 45. Upon acceptance of an application, GPL will allocate the 'Vinelot'(s) to the Grower and prepare the 'Vine Right Agreement' and 'Management Agreement' in accordance with clause 6. 46. Before authorising or instructing the Custodian to release the 'Application Money', GPL must be satisfied among other things that: 47. GPL is entitled to receive fees according to clause 11 and may instruct the Custodian to invest all or part of the 'Proceeds Portion' and 'Application Portion' according to clause 12. 48. Among other things the Constitution sets out in detail the following: | Compliance Plan: 49. As required by the Corporations Act 2001 , GPL has prepared a Compliance Plan. The purpose of the Compliance Plan is to ensure that GPL manages the Project in accordance with its obligations and responsibilities contained in the Constitution and that the interests of Growers are protected. | Lease Agreements: 50. Gunns Limited (the 'Landowner'), is the registered proprietor of the 'Land' on which both the 'Existing Vineyard' is established and the 'New Vineyard' will be established. The Landowner has agreed to grant to GPL a 'Lease' of the 'Land', together with all the rights described in clauses 3.2 and 4, for the 'Term' of the Project. 51. A lease has already been registered over some of the Land and a variation will be prepared extending the term of the lease for the length of the Project. A new lease over the remaining Land will also be registered against the relevant titles. | 'Vine Right Agreement': 52. Growers participating in the Project will enter into a 'Vine Right Agreement' with GPL for the 'Term' of the Project. The grant of the 'Vine Right' and the rights and obligations of the Grower and of GPL are set out in Clauses 4 and 5. These include: 53. The Landowner will, in the event of destruction or serious fault, replace all 'Vineyard Infrastructure' necessary for carrying out the Project, clause 5.1(b)(1). 54. In the event of destruction or death of the 'Vines', the Landowner will replant for the 'Term' (as close as is practically possible to 100% of the average initial planting density of the 'Developed Area') all 'Vines' necessary for carrying out the Project (clause 5.1(b)(3)) but subject to the condition at clause 8 (see paragraph 55 of this Ruling). 55. At any time after the second anniversary of the 'Date of Commencement', if 95% of the 'Vines' are destroyed or materially damaged by fire or any other cause, then GPL may terminate this agreement by notice in writing to each Grower, clause 8. | 'Management Agreement': 56. Under the 'Management Agreement' entered into between GPL, as 'Manager' and each Grower, GPL is appointed to perform the 'Services' in respect of each Grower's 'Vinelot' and to act as sole agent to market, enter into negotiations and sell the Harvested Grapes on the Grower's behalf. 57. In consideration for the 'Initial Services Fee' GPL must use its best endeavours to complete all of the 'Initial Services' in relation to each Grower's 'Vinelot' before 30 June 2008, clause 4 and clause 9.1. The 'Initial Services' described in clause 4 consist of some capital works on the 'New Vineyard', maintenance and recurrent services on both the 'New Vineyard' and the 'Existing Vineyard', and certain administrative services. 58. GPL must also complete all of the following 'Additional Services' in relation to each Grower's 'Vinelot', clause 5A: 59. Payment of the 'Application Fee' constitutes full payment of the fees relating to the 'Initial Services' and the 'Additional Services'. 60. In consideration for an annual 'Maintenance and Harvest Fee' GPL will carry out the ongoing 'Maintenance and Harvest Services' during the Term of the Project, clause 5.2 and clause 9.3. The Manager warrants to the Grower that it has access to such staff, personnel, consultants and other specialists' services as necessary to perform the 'Maintenance and Harvest Services', clause 5.1. 61. Each Grower appoints GPL as their sole agent to market, enter into negotiations and sell the 'Grapes' at a fair and reasonable price taking into account certain factors listed at clause 11(b). 62. GPL will be responsible for insuring the 'Vineyard' against public risk. If requested in writing by the Grower, GPL will endeavour to procure for the Grower insurance cover against destruction or damage of the Grower's 'Grapes'. If GPL is able to effect insurance as requested, GPL will invoice the Grower for the relevant premium together with an administration charge of 10% of the amount of the premium in each 'Year' of the 'Term'. For each Grower that does obtain such insurance, and subsequently makes a successful claim in relation to the policy, 35% of the insurance proceeds must be paid to GPL in satisfaction of the 'Ongoing Fees' for that 'Vinelot', clause 13. 63. Any Grower who suffers financial hardship at any time after the fourth anniversary of the 'Date of Commencement' may apply to GPL to pay on the Grower's behalf all 'Ongoing Fees' payable by the Grower under the 'Management Agreement', clause 16. | Pooling of 'Grapes' and distribution of proceeds: 64. The Constitution and the 'Management Agreement' set out provisions relating to the pooling of the Growers 'Grapes', the determination of the 'Gross Proceeds Entitlement' and the distribution of proceeds from the 'Fund'. This Product Ruling only applies where the following principles apply to those pooling and distribution arrangements: | Fees payable under the 'Management Agreement': 65. For the year ended 30 June 2008 part of the 'Application Fee' of $17,325 per 'Vinelot' payable on Application will be applied as follows: 66. In the event of a 'Harvest' in the year ended 30 June 2009, the Grower will incur a 'Year 1 Harvest Fee' equal to the cost of performing the Harvest, plus a 21% mark-up, clause 9.2. 67. Each Grower will also make the following additional 'Maintenance and Harvest Fee' payments per 'Vinelot': | Fees payable under the 'Vine Right Agreement': 68. Under clause 6 of the 'Vine Right Agreement' each Grower will make the following 'Vine Right Fee' payment per 'Vinelot': | Finance: 69. A Grower who does not pay the 'Application Fee' in full upon application can fund their involvement in the Project as follows: 70. Other than where payment is made under a Terms Arrangement with GPL, Growers cannot rely on any part of this Ruling if the 'Application Fee' is not paid in full on or before 15 June 2008 by the Grower or, on the Grower's behalf by a lending institution. Where an application is accepted subject to finance approval by any lending institution other than Gunns Finance, Growers cannot rely on this Ruling if written evidence of that approval has not been given to the Responsible Entity by the lending institution on or before 15 June 2008. 71. Only the finance arrangements set out below are covered by this Product Ruling. A Grower cannot rely on this Product Ruling if they enter into a finance arrangement with Gunns Finance or with Allco that materially differs from those set out in the documentation provided to the Tax Office with the application for this Product Ruling and summarised below. A Grower who 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 that are not covered by this Product Ruling. 72. This Ruling only applies to loans for the 'Application Fee'. It does not apply to any additional loans, or 'Further Loan Amounts' made to Borrowers by Gunns Finance or by Allco. | Terms Arrangement: 73. If GPL accepts payment of the 'Application Fee' under a Terms Arrangement the Grower must complete a terms application and a Direct Debit Authority. The Grower will be required to pay their 'Application Fee', as follows: | Loans from Gunns Finance: 74. The loans offered by Gunns Finance are Principal and Interest loans with a term of 3, 5, 10 or 15 years. Features of the finance packages are: | Loans from Allco: 75. Allco offers 3 different loans: 76. Common features contained in each of these loans are that: | General qualifications to finance arrangements: 77. This Ruling does not apply if the finance arrangement entered into by the Grower includes or has any of the following features: Commissioner of Taxation 22 August 2007 | Is the Grower carrying on a business?: 78. For the amounts set out in paragraph 24 of this Ruling to constitute allowable deductions the Grower's viticulture activities as a participant in the Gunns Plantations Ltd Winegrape Project 2007 must amount to the carrying on of a business of primary production. 79. Two Taxation Rulings are relevant in determining whether a Grower will be carrying on a business of primary production. 80. The general indicators used by the Courts are set out in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? 81. Taxation Ruling TR 2000/8 Income tax: investment schemes, particularly paragraph 89, is more specific to arrangements such as the Gunns Plantations Ltd Winegrape Project 2007. As Taxation Ruling TR 2000/8 sets out, the relevant principles have been established in court decisions such as Commissioner of Taxation v. Lau (1984) 6 FCR 202; 84 ATC 4929; (1984) 16 ATR 55. 82. Having applied these principles to the arrangement set out above, a Grower in the Gunns Plantations Ltd Winegrape Project 2007 is accepted to be carrying on a business of growing and harvesting wine grapes for sale. | Divisions 40 and 328: 83. Any part of the expenditure if 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 trellising, vineguards, water facilities, a 'landcare operation', and the establishment of the grapevines is of a capital nature. This expenditure falls for consideration under Division 40 or Division 328. 84. The application and extent to which a Grower claims deductions under Division 40 and Division 328 depends on whether or not the Grower is a 'small business entity'. 85. The tax treatment of capital expenditure has been dealt with in a representative way in paragraphs 25 and 28 of this Ruling in the Table(s) and accompanying notes. | Section 8-1: 86. That part of the 'Initial Services Fee' identified in the Table at paragraph 24 of this Ruling, the whole of the 'Maintenance and Harvest Fee', and the whole of the 'Vine Right Fee' are deductible under section 8-1 (see paragraphs 43 and 44 of TR 2000/8). A 'non-income producing' purpose (see paragraphs 47 and 48 of TR 2000/8) is not identifiable in the arrangement and, apart from the landcare component of the 'Initial Services Fee', there is no other capital component evident in these fees (see paragraphs 49 to 51 of TR 2000/8). 87. The tests of deductibility under the first limb of section 8-1 are met. The exclusions do not apply. Subject to the application of the prepayment provisions (see paragraphs 90 to 97 of this Ruling) a deduction for these amounts can be claimed in the year in which they are incurred. (Note: the meaning of incurred is explained in Taxation Ruling TR 97/7.) 88. Some Growers may finance their participation in the Project through a Loan Agreement with either Gunns Finance or Allco. Applying the same principles as that used for the 'Initial Services Fee', the 'Maintenance and Harvest Fee', and the 'Vine Right Fee', interest incurred under such a loan has sufficient connection with the gaining of assessable income to be deductible under section 8-1. 89. Other than where the prepayment provisions apply (see paragraphs 90 to 96 of this Ruling), a Grower can claim a deduction for such interest in the year in which it is incurred. | Sections 82KZL to 82KZMF: 90. 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. 91. For this Project, the only prepayment provisions that are relevant are section 82KZL of the ITAA 1936 (an interpretive provision) and sections 82KZME and 82KZMF of the ITAA 1936 (operative provisions). | Application of the prepayment provisions to this Project: 92. Under the scheme to which this Product Ruling applies the part of the 'Initial Services Fee' identified in the Table at paragraph 24 of this Ruling is incurred on or before 15 June 2008 for services to be wholly done by 30 June 2008, and the interest payable to Gunns Finance or Allco under the loans summarised at paragraphs 74 to 76 of this Ruling is incurred monthly in arrears. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this expenditure. 93. However, that part of the 'Application Fee' representing the 'Maintenance and Harvest Fee', and that part representing the 'Vine Right Fee' is expenditure for things that will not be wholly done within the same year of income as the year in which the expenditure is incurred. 94. For this expenditure the requirements of section 82KZME of the ITAA 1936 are met, and, therefore, unless one of the exceptions to section 82KZME applies, the amount and timing of tax deductions for those fees are determined under section 82KZMF of the ITAA 1936. Section 82KZMF uses the formula below, to apportion prepaid expenditure and allow a deduction over the period that the benefits are provided. Expenditure * [Number of days of eligible service period in the year of income / Total number of days of eligible service period] 95. In the formula, 'eligible service period' (defined in subsection 82KZL(1) of the ITAA 1936) means the period during which the thing under the agreement is to be done. The eligible service period begins on the day on which the thing under the agreement commences to be done or on the day on which the expenditure is incurred, whichever is the later, and ends on the last day on which the thing under the agreement ceases to be done, up to a maximum of 10 years. 96. The prepaid 'Maintenance and Harvest Fee' and 'Vine Right Fee' incurred by each Grower do not fall within any of the five exceptions to section 82KZME of the ITAA 1936. Therefore, the deduction for each year is determined using the formula in subsection 82KZMF(1) of the ITAA 1936. Section 82KZMF apportions the deduction for prepaid 'Maintenance and Harvest Fee' and 'Vine Right Fee' over the period that the services for which the prepayment is made are provided. 97. As noted in the Ruling section above, Growers who prepay other fees or who prepay 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. | Sections 35-10 and 35-55 - deferral of losses from non-commercial business activities and the Commissioner's discretion: 98. In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the years ending 30 June 2008 to 30 June 2011 , the Commissioner has applied the principles set out in Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion. Accordingly, based on the evidence supplied, the Commissioner has determined that for those income years: 99. A Grower who would otherwise be required to defer a loss arising from their participation in the Project under subsection 35-10(2) until a later income year is able to offset that loss against their other assessable income. 100. 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: 101. 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 of the ITAA 1936. It will not apply to deny the deduction otherwise allowable under section 8-1 of the ITAA 1997. | Part IVA - general tax avoidance provisions: 102. 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). 103. The Gunns Plantations Ltd Winegrape Project 2007 - Late Growers 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 24 to 27 of this 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. 104. 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 wine grapes. 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. 105. The following is a detailed contents list for this Ruling: Not previously issued as a draft


Appendix: Is the Grower carrying on a business?: 78. For the amounts set out in paragraph 24 of this Ruling to constitute allowable deductions the Grower's viticulture activities as a participant in the Gunns Plantations Ltd Winegrape Project 2007 must amount to the carrying on of a business of primary production. 79. Two Taxation Rulings are relevant in determining whether a Grower will be carrying on a business of primary production. 80. The general indicators used by the Courts are set out in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production? 81. Taxation Ruling TR 2000/8 Income tax: investment schemes, particularly paragraph 89, is more specific to arrangements such as the Gunns Plantations Ltd Winegrape Project 2007. As Taxation Ruling TR 2000/8 sets out, the relevant principles have been established in court decisions such as Commissioner of Taxation v. Lau (1984) 6 FCR 202; 84 ATC 4929; (1984) 16 ATR 55. 82. Having applied these principles to the arrangement set out above, a Grower in the Gunns Plantations Ltd Winegrape Project 2007 is accepted to be carrying on a business of growing and harvesting wine grapes for sale. | Divisions 40 and 328: 83. Any part of the expenditure if 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 trellising, vineguards, water facilities, a 'landcare operation', and the establishment of the grapevines is of a capital nature. This expenditure falls for consideration under Division 40 or Division 328. 84. The application and extent to which a Grower claims deductions under Division 40 and Division 328 depends on whether or not the Grower is a 'small business entity'. 85. The tax treatment of capital expenditure has been dealt with in a representative way in paragraphs 25 and 28 of this Ruling in the Table(s) and accompanying notes. | Section 8-1: 86. That part of the 'Initial Services Fee' identified in the Table at paragraph 24 of this Ruling, the whole of the 'Maintenance and Harvest Fee', and the whole of the 'Vine Right Fee' are deductible under section 8-1 (see paragraphs 43 and 44 of TR 2000/8). A 'non-income producing' purpose (see paragraphs 47 and 48 of TR 2000/8) is not identifiable in the arrangement and, apart from the landcare component of the 'Initial Services Fee', there is no other capital component evident in these fees (see paragraphs 49 to 51 of TR 2000/8). 87. The tests of deductibility under the first limb of section 8-1 are met. The exclusions do not apply. Subject to the application of the prepayment provisions (see paragraphs 90 to 97 of this Ruling) a deduction for these amounts can be claimed in the year in which they are incurred. (Note: the meaning of incurred is explained in Taxation Ruling TR 97/7.) 88. Some Growers may finance their participation in the Project through a Loan Agreement with either Gunns Finance or Allco. Applying the same principles as that used for the 'Initial Services Fee', the 'Maintenance and Harvest Fee', and the 'Vine Right Fee', interest incurred under such a loan has sufficient connection with the gaining of assessable income to be deductible under section 8-1. 89. Other than where the prepayment provisions apply (see paragraphs 90 to 96 of this Ruling), a Grower can claim a deduction for such interest in the year in which it is incurred. | Sections 82KZL to 82KZMF: 90. 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. 91. For this Project, the only prepayment provisions that are relevant are section 82KZL of the ITAA 1936 (an interpretive provision) and sections 82KZME and 82KZMF of the ITAA 1936 (operative provisions). | Application of the prepayment provisions to this Project: 92. Under the scheme to which this Product Ruling applies the part of the 'Initial Services Fee' identified in the Table at paragraph 24 of this Ruling is incurred on or before 15 June 2008 for services to be wholly done by 30 June 2008, and the interest payable to Gunns Finance or Allco under the loans summarised at paragraphs 74 to 76 of this Ruling is incurred monthly in arrears. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this expenditure. 93. However, that part of the 'Application Fee' representing the 'Maintenance and Harvest Fee', and that part representing the 'Vine Right Fee' is expenditure for things that will not be wholly done within the same year of income as the year in which the expenditure is incurred. 94. For this expenditure the requirements of section 82KZME of the ITAA 1936 are met, and, therefore, unless one of the exceptions to section 82KZME applies, the amount and timing of tax deductions for those fees are determined under section 82KZMF of the ITAA 1936. Section 82KZMF uses the formula below, to apportion prepaid expenditure and allow a deduction over the period that the benefits are provided. Expenditure * [Number of days of eligible service period in the year of income / Total number of days of eligible service period] 95. In the formula, 'eligible service period' (defined in subsection 82KZL(1) of the ITAA 1936) means the period during which the thing under the agreement is to be done. The eligible service period begins on the day on which the thing under the agreement commences to be done or on the day on which the expenditure is incurred, whichever is the later, and ends on the last day on which the thing under the agreement ceases to be done, up to a maximum of 10 years. 96. The prepaid 'Maintenance and Harvest Fee' and 'Vine Right Fee' incurred by each Grower do not fall within any of the five exceptions to section 82KZME of the ITAA 1936. Therefore, the deduction for each year is determined using the formula in subsection 82KZMF(1) of the ITAA 1936. Section 82KZMF apportions the deduction for prepaid 'Maintenance and Harvest Fee' and 'Vine Right Fee' over the period that the services for which the prepayment is made are provided. 97. As noted in the Ruling section above, Growers who prepay other fees or who prepay 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. | Sections 35-10 and 35-55 - deferral of losses from non-commercial business activities and the Commissioner's discretion: 98. In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the years ending 30 June 2008 to 30 June 2011 , the Commissioner has applied the principles set out in Taxation Ruling TR 2007/6 Income tax: non-commercial business losses: Commissioner's discretion. Accordingly, based on the evidence supplied, the Commissioner has determined that for those income years: 99. A Grower who would otherwise be required to defer a loss arising from their participation in the Project under subsection 35-10(2) until a later income year is able to offset that loss against their other assessable income. 100. 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: 101. 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 of the ITAA 1936. It will not apply to deny the deduction otherwise allowable under section 8-1 of the ITAA 1997. | Part IVA - general tax avoidance provisions: 102. 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). 103. The Gunns Plantations Ltd Winegrape Project 2007 - Late Growers 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 24 to 27 of this 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. 104. 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 wine grapes. 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 | NOT LEGALLY BINDING SECTION: | 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. | 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. | $10,269 See Notes (i) & (ii) | As incurred See Note (iii) | $2,035 See Notes (i), (iv) & (v) | $2,035 See Notes (i), (iv), (v) & (vi) | $46 See Notes (i), (iv) & (v) | $550 See Notes (i), (iv) & (v) | Interest on loans with Gunns Finance or Allco | As incurred See Note (vii) | Must be calculated See Note (viii) | Amount must be calculated See Notes (ix)& (x) | Water facility (eg dam, irrigation) | $178 See Notes (ix) & (xi) | $316 See Notes (ix) & (xii) | Establishment of horticultural plants (Vines ) | Nil See Notes (ix) & (xiii) | $392 See Notes (xiv) & (xv) | $178 See Notes (xiv) & (xvi) | $316 See Notes (xiv) & (xvii) | Establishment of horticultural plant | Nil See Notes (xiv) & (xviii) | Location - existing vineyard | 'Coombend', Eastern Tasmania | Type of business to be carried on by each entity | Commercial growing of wine grapes for the purpose of harvesting and selling the produce | Number of hectares offered for cultivation | 0.20 hectares, 'Vinelot', of which 0.06 hectares will be of 'Existing Vineyard' and 0.14 hectares will be of 'New Vineyard' | Minimum allocation per Grower | Deductions for the 'Initial Services Fee', the 'Maintenance and Harvest Fee', the 'Vine Right Fee', Interest, and Loan Establishment Fee | Deductions for capital expenditure (non-'small business entities') | Deductions for capital expenditure (small business entities) | Division 35 - deferral of losses from non-commercial business activities | Anti-avoidance provisions | Expenditure of a capital nature | Deductibility of the 'Initial Services Fee', the 'Maintenance and Harvest Fee', the 'Vine Right Fee', and interest on loans with Gunns Finance or Allco | Appendix 2 - Detailed contents list


Related rulings: TR 97/7 TR 97/11 TR 98/22 TR 2000/8 TR 2002/11 TR 2007/6 PR 2006/164
Legislative references: ITAA 1936 82KL ITAA 1936 Pt III Div 3 Subdiv H ITAA 1936 82KZL ITAA 1936 82KZL(1) ITAA 1936 82KZM ITAA 1936 82KZMA ITAA 1936 82KZMB ITAA 1936 82KZMC ITAA 1936 82KZMD ITAA 1936 82KZME ITAA 1936 82KZMF ITAA 1936 82KZMF(1) 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 40-425(2) ITAA 1997 40-440 ITAA 1997 Subdiv 40-F ITAA 1997 40-515(1)(a) ITAA 1997 40-515(1)(b) ITAA 1997 40-520(1) ITAA 1997 40-520(2) ITAA 1997 40-525(2) ITAA 1997 40-530 ITAA 1997 40-540 ITAA 1997 40-545 ITAA 1997 Subdiv 40-G ITAA 1997 40-630 ITAA 1997 40-635 ITAA 1997 Div 328 ITAA 1997 328-180 ITAA 1997 Subdiv 328-D TAA 1953 TAA 1953 Sch 1 357-75(1) Copyright Act 1968 Corporations Act 2001 Corporations Act 2001 11 SISA 1993
Case references: Commissioner of Taxation v. Lau (1984) 6 FCR 202 84 ATC 4929 (1984) 16 ATR 55
Subject references: carrying on a business commencement of business non-commercial losses primary production primary production expenses management fee expenses producing assessable income product rulings public rulings schemes and shams tax avoidance tax benefits under tax avoidance schemes tax shelters taxation administration