Product Ruling PR 2007/74
Date of effect: 8 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 2007 Macgrove Project (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 28 of this Ruling on or after 8 August 2007 and 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 Product 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 paragraphs 28 to 110 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 28 of this Ruling on or after 8 August 2007 and 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 Product 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 paragraphs 28 to 110 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 8 August 2007, the date this Product Ruling is made. It applies to the specified class of entities that enter into the scheme from 8 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 up to 30 June 2010. 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 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. 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 paragraph 4, this Ruling applies only to Growers who are accepted to participate in the Project from 8 August 2007 to 15 June 2008, provided that on or before this date: The Grower's participation in the Project must constitute the carrying on of a business of primary production. | Small business concessions: 19. From the 2007-08 income year, a range of concessions previously available under the 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). 20. 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. | Section 6-5: 21. That part of the net sales proceeds from the Project attributable to the Grower's produce, less any GST payable on those proceeds (section 17-5), will be assessable income of the Grower under section 6-5 in the year in which it is derived. | Sections 8-1 and 25-25 and Division 27 of the ITAA 1997 and sections 82KZME to 82KZMF of the Income Tax Assessment Act 1936: 22. A Grower who is accepted to participate in the Project on or before 15 June 2008 may claim deductions, on a per Macgrove basis, for the following expenditure set out in the Table below. | Division 40: 23. Each Grower who is accepted to participate in the Project on or before 15 June 2008 will also be entitled to a tax deduction relating to the macadamia trees planted on the Macgrove as set out in the Table below. | Notes: 24. A Joint Venture Grower may claim deductions, on a per Macgrove basis, for the following expenditure set out in the Tables and Notes in paragraph 22 of this Ruling: 25. Each Joint Venturer can also claim deductions for its 50% proportional share of the horticultural plant write-off as discussed in Note (vi) to the Table above. | Section 35-55 - exercise of Commissioner's discretion: 26. A Grower who is an individual accepted into the Project on or before 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 these Growers as follows: This conditional exercise of the discretion will allow those losses to be offset against the Grower's other assessable income in the income year in which the losses arise. | Sections 82KZME, 82KZMF and 82KL and Part IVA: 27. For a Grower who participates in the Project and incurs expenditure as required by the Constitution the following provisions of the ITAA 1936 have application as indicated: 28. The scheme that is the subject of this Ruling is identified and described in 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. 29. 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. 30. All Australian Securities and Investment Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. The effect of these agreements is summarised as follows. | Overview: 31. Following is a summary of the scheme: 32. The Project is a registered managed investment scheme under the Corporations Act 2001 (Corporations Act). Maccacorp Limited (Maccacorp) has been granted an Australian Financial Services Licence (Licence No 296213) and will be the Responsible Entity for the Project. 33. An offer to participate in the Project will be made through a Product Disclosure Statement (PDS). The offer under the PDS is for 520 established Macgroves totalling approximately 209 hectares in the Project. Participants will be invited to subscribe for a minimum of 1 Macgrove, comprising 0.4 hectares. The Trees will be planted on each Grower's Macgrove and all establishment activities will be completed by the time of acceptance of each Grower's application to participate in the Project. This ruling has no application to Growers accepted to participate in the Project before 8 August 2007 and after 15 June 2008. 34. A minimum of 100 established Macgroves must be issued under the PDS for the Project to commence. Entities associated with Maccacorp may apply for established Macgroves, including, to ensure that the minimum subscription is met. However, entities associated with Maccacorp will not take up more than 20 percent of the total number of issued established Macgroves. Each of the entities associated with Maccacorp will be Growers as defined in the Constitution, will be bound by the Project Agreements in the same way as other Growers and will be required to pay the same fees at the same time as other Growers. PR 2006/163 was issued on 20 December 2006 for the Project's Early Growers, on the basis of a Minimum Subscription of 100 established Macgroves. Minimum Subscription was achieved on 7 May 2007. 35. This Product Ruling will have no application if entities associated with Maccacorp purchase Macgroves and fail to pay the same fees at the same time as other Growers. In this context payment means that Maccacorp is put into funds with real money. Payment does not include the use of bridging finance, promissory notes or other such instruments. 36. The Project involves the commercial growing, cultivation and harvesting of macadamia nuts for sale. 37. Applications to participate in the Project must be made using the Application and Power of Attorney Form included in the PDS. By completing this Form the Grower agrees to allow Maccacorp to enter into, execute and otherwise deal with Project Agreements (being the Sub Leases, Consolidated Management Agreement and Sale Agreement) on their behalf. A custodian will be appointed under the Custody Agreement to hold the Project Assets for the Growers. 38. For Applicants who are accepted as Growers in the Project, Maccacorp will allocate established Macgroves to those Applicants and establish and maintain a register of Growers throughout the term of the Project. 39. Under the PDS offer, Growers can enter the Project during the period up to 15 June 2007 and during the period from 8 August 2007 to 15 June 2008. Applicants will not be accepted into the Project from 16 June 2007 to 7 August 2007 and after 15 June 2008. This Ruling only applies to Growers who enter into the Project from 8 August 2007 to 15 June 2008. PR 2006/163 issued for Early Growers who entered the Project from 20 December 2006 to 15 June 2007. 40. The Project land on which Growers will be growing and cultivating the Trees for the production of macadamia nuts is situated at 92 Kenzler Road, Sharon via Bundaberg Queensland (Kenzler Road land), and 351-353 Booyang Road, Moore Park, Queensland (Moore Park land). Maccacorp will enter into a Lease with the Landowner for the Kenzler Road land, and a Lease with the Moore Park Landowner for the Moore Park land, in relation to the Land, access roads and the supply of Irrigation Water. There are three dams on the Kenzler Road land with a total capacity of approx 400 mega litres as well as Water Allocations Nos 360 and 379 for a total of 238 mega litres per annum. There will be one main dam on the Moore Park land with a total capacity of approximately 25 mega litres. Additionally, water to the Moore Park land is supplied by a Queensland Government irrigation scheme, the allocation being 296 mega litres per annum. Further, Maccacorp will obtain Additional Water totalling 200 mega litres annually. The Leases will be submitted for registration with the Registrar of Titles, Queensland. 41. Maccacorp will grant the Growers three consecutive Sub Leases to use and occupy one or more identifiable established Macgroves. The collective terms of the Sub Leases (ten years, nine years and one year) correspond to the 20 year term of the Project. Under the first Sub Lease, the Grower agrees to maintain the Orchard in accordance with the Management Plan and in a manner that is consistent with best agricultural practice. The Trees and all Improvements are and remain the property of the Land Owner. A Caveat for each Grower in respect of the established Macgroves held for each Grower will be submitted for registration with the Investment Registrar of Titles, Queensland. 42. Each Grower will enter into a Consolidated Management Agreement with Maccacorp to cultivate and maintain the Trees and be responsible for harvesting, procuring the processing of and selling the macadamia nuts on behalf of the Grower. 43. Maccacorp has entered into the Sale Agreement with Macadamia Processing Co Limited (MPC) to sell the entire macadamia crop produced from the Orchard during the duration of the Project at prices and on terms which are no less favourable than arms length terms. 44. As an alternative to participation by a Grower as a single entity, the terms of the Constitution and the Consolidated Management Agreement provide that two Growers may enter into a 'Joint Venture' to subscribe for a Macgrove(s). | Constitution: 45. The Constitution establishes the Project and operates as a deed binding on each Grower and Maccacorp (clause 2.1). The Constitution sets out the terms and conditions under which Maccacorp agrees to act as the Responsible Entity and thereby manage the Project. 46. The Project is established for the purpose of: 47. The Project is established immediately upon ASIC registering the Project pursuant to Part 5C.1 of the Corporations Act and commences upon achievement of minimum subscription. The Term of the Project ends upon the earliest of: Upon the termination of the Project all of the rights and obligations under the Project Agreements will cease and each Project Agreement will be automatically terminated. 48. In order to become a Grower in the Project, an Applicant must lodge an Application and pay to the Responsible Entity the amount of $11,000 in respect of each established Macgrove on the terms and conditions specified in the PDS which is current at the date of lodging the relevant Application and the Application must be accepted by the Responsible Entity (clause 3). For this Product Ruling to apply the 'current' PDS under which a Grower is accepted must be materially the same as the draft PDS submitted to the Tax Office dated 8 January 2007. 49. The amount payable under clause 3 represents the Management Fee payable for the Initial Orchard Maintenance Services to be provided in the First Financial Year in respect of each established Macgrove, pursuant to the Consolidated Management Agreement. 50. Each Application for an Interest must: 51. Upon accepting an Application, the Responsible Entity will allocate to the Applicant that number of established Macgroves in respect of which the Application has been accepted by the Responsible Entity (clause 14.1). 52. The Responsible Entity must establish and maintain a register of Growers throughout the term of the Project (clause 14.2). 53. If any Application is refused then the Responsible Entity must refund any Application Money to the Applicant concerned within five Business Days after the refusal (clause 13.3). 54. The Responsible Entity must open two Project accounts with a bank or other financial institution. One account will be the Application Fund (into which will be deposited all money received from Applicants) and the other will be the Proceeds Fund (into which will be deposited all money generated from the Project for the Growers of the Project). However, in certain limited circumstances the Responsible Entity may use one account only (clause 12.2). The Responsible Entity may transfer money paid by an Applicant from the Application Fund to the Responsible Entity for the purposes of the Project where the Responsible Entity has issued an Interest to the Applicant (clause 15.1). 55. Each Applicant has an interest in the Application Fund equal to the proportional interest that Applicant's Application Money bears to the total Application Money paid by all Applicants. However, an Applicant does not have any interest in any particular part of the Application Fund or in any Investment (clause 16.1). 56. Each Grower directly owns their Grower Interest, including: 57. The Grower's Interest does not include the Trees or any of the Improvements which will at all times remain the property of the Land Owner (clause 16.3). 58. Each Grower has an interest in the Proceeds Fund equal to the Grower's Proportion, which is defined as the proportion that the area of the Grower's established Macgroves bears to the total area of all established Macgroves registered to Growers in that Financial Year (clause 16.2). 59. Where an event occurs to which any insurance policies apply, the insurance proceeds will be dealt with as follows: 60. The Responsible Entity must harvest all of the Macadamia Nuts grown on Trees in each Grower's Macgrove in accordance with the Consolidated Management Agreements and may store, market and sell the Crop harvested in accordance with the terms of any Sale Agreement (clause 25.1). Macadamia Nuts grown during the term of the Project will be sold under the Nut in Shell Supply Agreement discussed in paragraphs 96 and 97 of this Ruling. 61. The Responsible Entity must pay into the Proceeds Fund: | Supplementary Constitution: 62. The principal purposes of this document are to firstly, change the name of the Constitution of the 2006 Macgrove Project, to the Constitution of the 2007 Macgrove Project and secondly, to amend the Constitution and Consolidated Management Agreement to provide for the situation where two entities participate in the Project as Joint Venturers. 63. Joint Venturers are known as First Joint Venturer and Second Joint Venturer, and are apportioned specific responsibilities, rights and entitlements under clause 35 of the Constitution. 64. Each of the First Joint Venturer and the Second Joint Venturer are responsible for the payment of Management Fees and Rent over the Term of the Project in the manner stated at paragraph 102 to 105 of this Ruling. Both the First Joint Venturer and the Second Joint Venturer are entitled to a Prescribed Proportion of 50% of the Joint Venture Assets, as defined in clause 1.1. | Compliance Plan: 65. The Plan describes how the Responsible Entity will operate the Project and ensure that it complies with the Corporations Act, the Constitution and with any other operating requirements set down by the board of Directors of the Responsible Entity. 66. The principal purpose of the Compliance Plan is to ensure that the interests of Growers are protected. The Plan sets out the systems and methods by which the Responsible Entity, its officers, agents, contractors and employees will ensure that the Project and the Responsible Entity continue to comply with all relevant parts of the Corporations Act and the Constitution and continuously monitor and review such compliance. | Supplementary Compliance Plan: 67. This Plan changes all references to the 2006 Macgrove Project in the Compliance Plan to the 2007 Macgrove Project. It also amends certain definitions in clause 1 to reflect the changes in the arrangement from the 2006 Macgrove Project. The 2006 Macgrove Project did not proceed because Minimum Subscription was not reached. | Leases: 68. Under the Lease of the land at 92 Kenzler Road, Sharon via Bundaberg (Kenzler Road Lease), in return for the 'Rent', Maccland leases the Land to Maccacorp for the Term of the Project (clause 2.1). The Land is located at Bundaberg, Queensland, being Lots 1 and 2 on RP110202, Lots 3 and 4 on RP866764 and Lot 1 on CP RL5669. The Term of the Lease is the period commencing on 30 September 2006 and ending 30 June 2028. The Rent is the total of rental received by Maccacorp under all sub lease agreements including, but not limited to the Sub Leases between Maccacorp and the Growers, which shall be due and payable on 1 July in each Financial Year commencing 1 July 2008 (clause 3). 69. Maccacorp entered into a Put and Call Option Lease Deed in relation to the Moore Park land. Under the terms of the Deed, Maccacorp had a right to require the Moore Park Landowner, to lease the Moore Park land to Maccacorp (for use in the Project). 70. The Put and Call Option was exercised on 9 March 2007 and the Moore Park Landowner and Maccacorp entered into the Moore Park Lease on 5 April 2007. 71. Under the Moore Park Lease, in return for the 'Rent', the Moore Park Landowner leases the Land to Maccacorp for the Term of the Project (clause 2.1). The Land is located at Moore Park, Queensland, being Lots 1 and 2 on RP52762, Lot 1 on RP155035 and Lot 9 on RL199897. The Term of the Moore Park Lease will be 21 years, ending on 30 June 2028. The Rent is the total of rental received by Maccacorp under all sub lease agreements including, but not limited to the Sub Leases between Maccacorp and the Growers, which shall be due and payable on 1 July in each Financial Year commencing 1 July 2008. 72. The Lessee may give the Lessors a notice asking the Lessors to grant the Lessee a further lease for the period of five years commencing on the day following the expiration of the initial Term of these Leases. This is known as the First Option Period. 73. The Lessee may give the Lessors a notice asking the Lessors to grant the Lessee a further lease for the period of four years commencing on the day following the expiration of the First Option Period. This is known as the Second Option Period. 74. Under the Leases, Maccacorp: 75. Under the Kenzler Road Lease, Maccland will provide Access Roads for use by Maccacorp and Maccacorp's employees and will maintain the supply of the Irrigation Water and will renew water allocations and licences as and when required (clauses 9.5 and 9.6). 76. Under the Moore Park Lease, the Moore Park Landowner will: 77. The Leases will be submitted for registration with the Registrar of Titles, Queensland. | Sub Leases: 78. Under the Sub Leases the Lessor leases to the Grower the Grower's established Macgrove together with the right to use in common with the Lessor and other participants in the Project the Common Area from the Commencement Date on and subject to the terms and conditions set out in the Sub Leases (clause 2). Common Area means those parts of the Land provided by the Lessor from time to time for common use by the Grower and the Lessor and/or other Growers who are occupants of the Land and is more particularly described in Item 5 of the Schedule. Caveats for the established Macgroves held by each Grower are to be submitted for registration within thirty days of execution of the Sub Leases. 79. Each Sub Lease will be entered at the same time. The commencement and expiry dates of each Sub Lease are as follows: 80. The Grower may give the Lessor a notice asking the Lessor to grant the Lessee a further lease for the period of five years commencing on the day following the expiration of the initial Term of the Third Sub Lease. This is known as the First Option Period. 81. The Grower may give the Lessor a notice asking the Lessor to grant the Lessee a further lease for the period of four years commencing on the day following the expiration of the First Option Period. This is known as the Second Option Period. 82. The Growers must pay to Maccacorp, in respect of each Financial Year during the Term, the Rent in accordance with Item 3 of the Schedule. There is no Rent payable for the First Financial Year. The Rent for the second and each successive Financial Year of the Term must be paid annually in advance on 1 July in each Financial Year, commencing on 1 July 2008. 83. Under the Sub Leases the Grower: 84. Unless inconsistent with the Management Plan the Grower will do or will cause to be done, the following: | Consolidated Management Agreement: 85. Under clauses 4 and 5 of this Agreement the Grower engages the Manager during the Term of the Project to perform all services necessary to maintain a macadamia nut tree orchard on the Grower's Macgrove, harvest the Macadamia Nuts and sell the Crop on behalf of the Grower. The Term of the Project commences on the Commencement Date (being the date of execution of the Consolidated Management Agreement) and is expected to end on 30 June 2028. 86. If the Grower exercises the first five year option to extend the term of the third Sub Lease, then the Term of this agreement is automatically deemed extended by five years. If the Grower exercises the second four year option to further extend the term of the third Sub Lease, then the Term of this agreement is automatically deemed extended by a further four years. 87. Specifically clause 5 of the Agreement states that the Manager will: 88. The Initial Orchard Maintenance Services which must be provided by the Manager in the first Financial Year are set out in Schedule 2 to the Consolidated Management Agreement and the Orchard Maintenance Services which must be provided by the Manager in the second and subsequent Financial Years are set out in Schedule 3 of that Agreement. 89. The Grower must pay the Management Fee to the Manager for the Orchard Services set out in clause 5. The Management Fee for each Financial Year is specified in Column 2 of Item 5 of Schedule 1. 80% of the Management Fee is in respect of performing, or causing to be performed, the Orchard Services and the remaining 20% of the Management Fee is remuneration payable to the Manager as Responsible Entity of the Project for managing that performance. The Management Fee is payable in advance on the date stated in Column 3 of Item 5 of Schedule 1. 90. The Manager will, at the Grower's cost, maintain with a reputable insurer a policy of insurance against public risk and occupier's liability and against damage to the Grower's Macgrove which is caused by fire or other insurable risks provided that in the opinion of the Manager the costs of any such insurance are economically justified. The Manager is not required to take out crop insurance unless specifically agreed between the Manager and the Grower from year to year. All such policies of insurance must be in the names of or note the interests of the Land Owner and the Grower (clause 12). | Pooling of amounts and distribution of the Proceeds Fund: 91. The Constitution (clause 25) set out provisions relating to the pooling of amounts from the sale of each Grower's Macadamia Nuts and the distribution of the Grower's Proportion of the Proceeds Fund from that sale or from insurance proceeds. This Product Ruling only applies where the following principles apply to those pooling and distribution arrangements: | Principal Subcontractor's Agreement: 92. Under this Agreement, Maccmanagement Pty Limited (Maccmanagement) has agreed to provide the Orchard Establishment Services as detailed in Schedule 1, establish the Orchard and provide all necessary services to maintain the Orchard on the Land including the Initial Orchard Maintenance Services and the Orchard Maintenance Services (as defined in the Consolidated Management Agreement) (clause 3). 93. The Orchard Establishment Services include the preliminary works, selection of suitable macadamia trees, the planting of the macadamia trees and installation of a modern cost effective irrigation system. 94. The Principal Subcontractor must complete the Orchard Establishment Services in respect of the Macgroves of each Grower by the time of acceptance of each such Grower's application to participate in the Project. 95. This Agreement commences on the Commencement Date (being the date of the Agreement) and ends on the second anniversary of the Commencement Date (Initial Term). By mutual agreement, the Initial Term may be extended by two year periods or for such other period as may be agreed by the Parties (clause 6). | Nut-In-Shell Supply Agreement: 96. Under this Agreement Maccacorp agrees to sell and MPC agrees to buy, all macadamia Nut-In-Shell produced on the Project Property from the date of the Agreement. 97. Each year MPC will pay to Maccacorp the average selling price per kilogram obtained by MPC for the finished product after deducting all reasonable expenses and provisions of MPC. | Custody Agreement: 98. Under this Agreement, Maccacorp appoints Perpetual Nominees Limited (Perpetual) as custodian of the Project Assets and Perpetual accepts that appointment. | Fees: 99. The fees payable under clause 14 of the Consolidated Management Agreement for each Macgrove are set out in Schedule 1, as follows: Instalment 1 (the Management Fee Indexed from the previous Financial Year); plus Instalment 2 (the amount, if any, by which the Grower's Proportion of the Orchard Operating Expenses [1] incurred in a Financial Year exceeds the amount of Instalment 1 for that Financial Year) Instalment 1: 1 July in each Financial Year; Instalment 2: within 7 days of receipt of the Orchard Operating Expenses Statement | Performance Incentive Fee: 100. The Grower must pay a Performance Incentive Fee where applicable (clause 14.6). The Performance Incentive Fee payable in each Financial Year, is 25% of any net proceeds of sale of the Crop attributable to a Macgrove that exceeds the Performance Incentive Threshold (as defined in the Consolidated Management Agreement) in the Financial Year (Item 7 of Schedule 1). | Rent: 101. The fee payable under clause 3 of the Sub Leases for each Macgrove is set out in Item 3 of Schedule 1, as follows: | Joint Venture: 102. Fees payable per Macgrove by a Grower who is in a Joint Venture are as stipulated in clause 35.5 of the Supplementary Constitution. Under this clause, the amounts of fees for which a Joint Venture Grower will be solely responsible are expressed as percentages of the fees outlined in paragraphs 99 to 102 of this Ruling. 103. The First Joint Venturer will be solely responsible for paying the following fees and other amounts: 104. The Second Joint Venturer will be solely responsible for paying the following fees and other amounts: 105. Each Joint Venturer is liable for paying their Prescribed Proportion (being defined in the Supplementary Constitution as 50% each) of any performance incentive fees and each will be entitled to the Prescribed Proportion of the Joint Venturer's Macadamia Nuts Crop and the Joint Venture Proceeds (clause 35.6 of the Supplementary Constitution). | Finance: 106. Growers can fund their involvement in the Project themselves, borrow from Maccfinance (a lender associated with the Responsible Entity) or borrow from an independent lender. Growers cannot rely on this Product Ruling if they enter into a finance agreement with Maccfinance that materially differs from that set out in the finance documents provided to the Tax Office by Maccacorp with the application for this Product Ruling. 107. Growers also cannot rely on this Product Ruling if Application Moneys are not paid in full on or before 15 June 2008 by the Grower or, on the Grower's behalf, by any lending institution, including Maccfinance. 108. Where Growers borrow from Maccfinance, all Application monies (both from Growers directly and from Maccfinance) will be paid directly to the Responsible Entity. Such application monies must be paid into the Application Fund on or before the issue date of the Interest. The finance made available by Maccfinance is offered on the following terms contained in the Indicative Term Sheet and 2007 Macgrove Project Finance Package: 109. In each case: 110. 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 8 August 2007 | Is the Grower carrying on a business?: 111. For the amounts set out in the Tables above to constitute allowable deductions the Grower's horticultural activities as a participant in the 2007 Macgrove Project (Late Growers) must amount to the carrying on of a business of primary production. 112. Where there is a business, or a future business, the gross proceeds from the sale of the nuts in shell will constitute gross assessable income in their own right. The generation of 'business income' from such a business, or future business, provides the backdrop against which to judge whether the outgoings in question have the requisite connection with the operations that more directly gain or produce this income. 113. For schemes such as that of the 2007 Macgrove Project (Late Growers), Taxation Ruling TR 2000/8 sets out in paragraph 89 the circumstances in which the Grower's activities can constitute the carrying on of a business. As TR 2000/8 sets out, these circumstances have been established in court decisions such as Commissioner of Taxation v. Lau (1984) 6 FCR 202; 84 ATC 4929; (1984) 16 ATR 55. 114. Generally, a Grower will be carrying on a business of horticulture, and hence primary production, if: 115. In this Project, each Grower enters into a Consolidated Management Agreement and Sub Leases. 116. Under the Sub Leases, each individual Grower will have rights over specific and identifiable areas totalling 0.4 hectares of land for the Term of the Project. Under the Sub Leases the Grower must use the land in question for the purpose of carrying out horticulture activities, and for no other purpose. The Sub Leases allows the Manager to come onto to the land to carry out its obligations under the Consolidated Management Agreement. 117. Under the Consolidated Management Agreement the Manager is engaged by the Grower to cultivate and maintain the Trees on the Grower's identifiable area of land during the Term of the Project. 118. The Manager is also engaged to harvest and sell, on the Grower's behalf, the nuts in shell grown on the Grower's macadamia trees. 119. The general indicators of a business, as used by the Courts, are described in Taxation Ruling TR 97/11. Positive findings can be made from the Project's description for all the indicators. 120. The activities that will be regularly carried out during the term of the Project demonstrate a significant commercial purpose. Based on reasonable projections, a Grower in the Project will derive assessable income from the sale of the nuts in shell that will return a before-tax profit, that is, a profit in cash terms that does not depend in its calculation on the fees in question being allowed as a deduction. 121. The pooling of nuts in shell from macadamia trees grown on the Grower's Macgrove with the nuts in shell of other Growers is consistent with general horticultural practices. Each Grower's proportionate share of the sale proceeds of the pooled nuts in shell will reflect the proportion of the macadamia trees contributed from their Macgrove. 122. The Manager's services are also consistent with general horticultural practices. They are of the type ordinarily found in horticulture ventures that would commonly be said to be businesses. While the size of a Macgrove is relatively small, it is of a size and scale to allow it to be commercially viable. 123. The Grower's degree of control over the Manager as evidenced by the Consolidated Management Agreement and supplemented by the Corporations Act, is sufficient. During the Term of the Project, the Manager will provide the Grower with regular progress reports on the Grower's Macgrove and the activities carried out on the Grower's behalf. Growers are able to terminate arrangements with the Manager in certain instances, such as cases of default or neglect. 124. The horticulture activities, and hence the fees associated with their procurement, are consistent with an intention to commence regular activities that have an 'air of permanence' about them. For the purposes of this Ruling, the Growers horticultural activities in the 2007 Macgrove Project (Late Growers) will constitute the carrying on of a business. | Section 8-1: 125. Consideration of whether the Management Fee and Rent are deductible under section 8-1 begins with the first limb of the section. This view proceeds on the following basis: 126. The Management Fee and Rent associated with the horticulture activities will relate to the gaining of income from the Grower's business of horticulture (see above), and hence have a sufficient connection to the operations by which income (from the harvesting and sale of nuts in shell) is to be gained from this business. They will thus be deductible under the first limb of section 8-1. Further, no 'non-income producing' purpose in incurring the fee is identifiable from the scheme. The fee appears to be reasonable. There is no capital component of the Management Fee. The tests of deductibility under the first limb of section 8-1 are met. The exclusions do not apply. | Section 8-1: (i) Growers who use Maccfinance as the finance provider 127. Some Growers may finance their participation in the Project through a loan facility with Maccfinance. Whether the resulting interest costs are deductible under section 8-1 depends on the same reasoning as that applied to the deductibility of the Management Fees and Rent. 128. The interest incurred for the year ended 30 June 2008 and in subsequent years of income will be in respect of a loan to finance the Grower's business operations - the cultivation and growing of macadamia trees and the sub lease of the land on which the trees will have been planted - that will continue to be directly connected with the gaining of 'business income' from the Project. Such interest will, therefore, have a sufficient connection with the gaining of assessable income to be deductible under section 8-1. (ii) Growers who DO NOT use Maccfinance as the finance provider 129. The deductibility of interest incurred by Growers who finance their participation in the Project through a loan facility with a bank or financier other than Maccfinance is outside the scope of this Ruling. Product Rulings only deal with schemes where all details and documentation have been provided to, and examined by the Tax Office. | Sections 82KZL to 82KZMF: 130. The prepayment provisions contained in Subdivision H of Division 3 of Part III of the ITAA 1936 affect the timing of deductions for certain prepaid expenditure. These provisions apply to certain expenditure incurred under an agreement in return for the doing of a thing under the agreement (for example, the performance of management services or the leasing of land) that will not be wholly done within the same year of income as the year in which the expenditure is incurred. If expenditure is incurred to cover the provision of services to be provided within the same year, then it is not expenditure to which the prepayment rules apply. | Application of the prepayment provisions to this Project: 131. Under the scheme to which this Product Ruling applies Management Fees and Rent are incurred annually and interest on Maccfinance loans is incurred monthly in arrears. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this scheme. 132. However, sections 82KZME and 82KZMF of the ITAA 1936 may have relevance if a Grower in this Project prepays all or some of the expenditure payable under the Consolidated Management Agreement and/or the Sub Leases or prepays interest under any loan agreement, including loan agreements with financiers other than Maccfinance. Where such a prepayment is made these prepayment provisions will also apply to 'STS taxpayers' because there is no specific exclusion contained in section 82KZME that excludes them from the operation of section 82KZMF. 133. As noted in the Ruling section above, Growers who prepay Management Fees and Rent or interest are not covered by this Product Ruling and may instead request a private ruling on the tax consequences of their participation in this Project. | Division 40: 134. Any part of the expenditure of a Grower that is attributable to acquiring an asset or advantage of an enduring kind is generally capital or capital in nature and will not be an allowable deduction under section 8-1. In this Project, expenditure attributable to the establishment of the macadamia trees is of a capital nature. This expenditure falls for consideration under Division 40. 135. The tax treatment of capital expenditure has been dealt with in a representative way in paragraph 23 of this Ruling in the Tables and the accompanying Notes. | Section 35-55 - exercise of Commissioner's discretion: 136. In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the income years 30 June 2008 to 30 June 2010 (for First Joint Venturers) and 30 June 2008 to 30 June 2014 (for all other Growers) the Commissioner has applied the principles set out in Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses. Accordingly, based on the evidence supplied, the Commissioner has determined that for those income years ended 30 June 2008 up to and including 30 June 2010 and for those income years ended 30 June 2008 up to and including 30 June 2014: 137. 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: 138. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits(s)'. Insufficient 'additional benefits' will be provided to trigger the application of section 82KL. It will not apply to deny the deduction otherwise allowable under section 8-1 of the ITAA 1997. | Part IVA - general tax avoidance provisions: 139. 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). 140. The 2007 Macgrove Project (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 22 and 23 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. 141. 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 nuts in shell. 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. 142. The following is a detailed contents list for this Ruling: Not previously issued as a draft

Ruling: 18. Subject to paragraph 4, this Ruling applies only to Growers who are accepted to participate in the Project from 8 August 2007 to 15 June 2008, provided that on or before this date: The Grower's participation in the Project must constitute the carrying on of a business of primary production. | Small business concessions: 19. From the 2007-08 income year, a range of concessions previously available under the 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). 20. 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. | Section 6-5: 21. That part of the net sales proceeds from the Project attributable to the Grower's produce, less any GST payable on those proceeds (section 17-5), will be assessable income of the Grower under section 6-5 in the year in which it is derived. | Sections 8-1 and 25-25 and Division 27 of the ITAA 1997 and sections 82KZME to 82KZMF of the Income Tax Assessment Act 1936: 22. A Grower who is accepted to participate in the Project on or before 15 June 2008 may claim deductions, on a per Macgrove basis, for the following expenditure set out in the Table below. | Division 40: 23. Each Grower who is accepted to participate in the Project on or before 15 June 2008 will also be entitled to a tax deduction relating to the macadamia trees planted on the Macgrove as set out in the Table below. | Notes: 24. A Joint Venture Grower may claim deductions, on a per Macgrove basis, for the following expenditure set out in the Tables and Notes in paragraph 22 of this Ruling: 25. Each Joint Venturer can also claim deductions for its 50% proportional share of the horticultural plant write-off as discussed in Note (vi) to the Table above. | Section 35-55 - exercise of Commissioner's discretion: 26. A Grower who is an individual accepted into the Project on or before 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 these Growers as follows: This conditional exercise of the discretion will allow those losses to be offset against the Grower's other assessable income in the income year in which the losses arise. | Sections 82KZME, 82KZMF and 82KL and Part IVA: 27. For a Grower who participates in the Project and incurs expenditure as required by the Constitution the following provisions of the ITAA 1936 have application as indicated: 28. The scheme that is the subject of this Ruling is identified and described in 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. 29. 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. 30. All Australian Securities and Investment Commission (ASIC) requirements are, or will be, complied with for the term of the agreements. The effect of these agreements is summarised as follows. | Overview: 31. Following is a summary of the scheme: 32. The Project is a registered managed investment scheme under the Corporations Act 2001 (Corporations Act). Maccacorp Limited (Maccacorp) has been granted an Australian Financial Services Licence (Licence No 296213) and will be the Responsible Entity for the Project. 33. An offer to participate in the Project will be made through a Product Disclosure Statement (PDS). The offer under the PDS is for 520 established Macgroves totalling approximately 209 hectares in the Project. Participants will be invited to subscribe for a minimum of 1 Macgrove, comprising 0.4 hectares. The Trees will be planted on each Grower's Macgrove and all establishment activities will be completed by the time of acceptance of each Grower's application to participate in the Project. This ruling has no application to Growers accepted to participate in the Project before 8 August 2007 and after 15 June 2008. 34. A minimum of 100 established Macgroves must be issued under the PDS for the Project to commence. Entities associated with Maccacorp may apply for established Macgroves, including, to ensure that the minimum subscription is met. However, entities associated with Maccacorp will not take up more than 20 percent of the total number of issued established Macgroves. Each of the entities associated with Maccacorp will be Growers as defined in the Constitution, will be bound by the Project Agreements in the same way as other Growers and will be required to pay the same fees at the same time as other Growers. PR 2006/163 was issued on 20 December 2006 for the Project's Early Growers, on the basis of a Minimum Subscription of 100 established Macgroves. Minimum Subscription was achieved on 7 May 2007. 35. This Product Ruling will have no application if entities associated with Maccacorp purchase Macgroves and fail to pay the same fees at the same time as other Growers. In this context payment means that Maccacorp is put into funds with real money. Payment does not include the use of bridging finance, promissory notes or other such instruments. 36. The Project involves the commercial growing, cultivation and harvesting of macadamia nuts for sale. 37. Applications to participate in the Project must be made using the Application and Power of Attorney Form included in the PDS. By completing this Form the Grower agrees to allow Maccacorp to enter into, execute and otherwise deal with Project Agreements (being the Sub Leases, Consolidated Management Agreement and Sale Agreement) on their behalf. A custodian will be appointed under the Custody Agreement to hold the Project Assets for the Growers. 38. For Applicants who are accepted as Growers in the Project, Maccacorp will allocate established Macgroves to those Applicants and establish and maintain a register of Growers throughout the term of the Project. 39. Under the PDS offer, Growers can enter the Project during the period up to 15 June 2007 and during the period from 8 August 2007 to 15 June 2008. Applicants will not be accepted into the Project from 16 June 2007 to 7 August 2007 and after 15 June 2008. This Ruling only applies to Growers who enter into the Project from 8 August 2007 to 15 June 2008. PR 2006/163 issued for Early Growers who entered the Project from 20 December 2006 to 15 June 2007. 40. The Project land on which Growers will be growing and cultivating the Trees for the production of macadamia nuts is situated at 92 Kenzler Road, Sharon via Bundaberg Queensland (Kenzler Road land), and 351-353 Booyang Road, Moore Park, Queensland (Moore Park land). Maccacorp will enter into a Lease with the Landowner for the Kenzler Road land, and a Lease with the Moore Park Landowner for the Moore Park land, in relation to the Land, access roads and the supply of Irrigation Water. There are three dams on the Kenzler Road land with a total capacity of approx 400 mega litres as well as Water Allocations Nos 360 and 379 for a total of 238 mega litres per annum. There will be one main dam on the Moore Park land with a total capacity of approximately 25 mega litres. Additionally, water to the Moore Park land is supplied by a Queensland Government irrigation scheme, the allocation being 296 mega litres per annum. Further, Maccacorp will obtain Additional Water totalling 200 mega litres annually. The Leases will be submitted for registration with the Registrar of Titles, Queensland. 41. Maccacorp will grant the Growers three consecutive Sub Leases to use and occupy one or more identifiable established Macgroves. The collective terms of the Sub Leases (ten years, nine years and one year) correspond to the 20 year term of the Project. Under the first Sub Lease, the Grower agrees to maintain the Orchard in accordance with the Management Plan and in a manner that is consistent with best agricultural practice. The Trees and all Improvements are and remain the property of the Land Owner. A Caveat for each Grower in respect of the established Macgroves held for each Grower will be submitted for registration with the Investment Registrar of Titles, Queensland. 42. Each Grower will enter into a Consolidated Management Agreement with Maccacorp to cultivate and maintain the Trees and be responsible for harvesting, procuring the processing of and selling the macadamia nuts on behalf of the Grower. 43. Maccacorp has entered into the Sale Agreement with Macadamia Processing Co Limited (MPC) to sell the entire macadamia crop produced from the Orchard during the duration of the Project at prices and on terms which are no less favourable than arms length terms. 44. As an alternative to participation by a Grower as a single entity, the terms of the Constitution and the Consolidated Management Agreement provide that two Growers may enter into a 'Joint Venture' to subscribe for a Macgrove(s). | Constitution: 45. The Constitution establishes the Project and operates as a deed binding on each Grower and Maccacorp (clause 2.1). The Constitution sets out the terms and conditions under which Maccacorp agrees to act as the Responsible Entity and thereby manage the Project. 46. The Project is established for the purpose of: 47. The Project is established immediately upon ASIC registering the Project pursuant to Part 5C.1 of the Corporations Act and commences upon achievement of minimum subscription. The Term of the Project ends upon the earliest of: Upon the termination of the Project all of the rights and obligations under the Project Agreements will cease and each Project Agreement will be automatically terminated. 48. In order to become a Grower in the Project, an Applicant must lodge an Application and pay to the Responsible Entity the amount of $11,000 in respect of each established Macgrove on the terms and conditions specified in the PDS which is current at the date of lodging the relevant Application and the Application must be accepted by the Responsible Entity (clause 3). For this Product Ruling to apply the 'current' PDS under which a Grower is accepted must be materially the same as the draft PDS submitted to the Tax Office dated 8 January 2007. 49. The amount payable under clause 3 represents the Management Fee payable for the Initial Orchard Maintenance Services to be provided in the First Financial Year in respect of each established Macgrove, pursuant to the Consolidated Management Agreement. 50. Each Application for an Interest must: 51. Upon accepting an Application, the Responsible Entity will allocate to the Applicant that number of established Macgroves in respect of which the Application has been accepted by the Responsible Entity (clause 14.1). 52. The Responsible Entity must establish and maintain a register of Growers throughout the term of the Project (clause 14.2). 53. If any Application is refused then the Responsible Entity must refund any Application Money to the Applicant concerned within five Business Days after the refusal (clause 13.3). 54. The Responsible Entity must open two Project accounts with a bank or other financial institution. One account will be the Application Fund (into which will be deposited all money received from Applicants) and the other will be the Proceeds Fund (into which will be deposited all money generated from the Project for the Growers of the Project). However, in certain limited circumstances the Responsible Entity may use one account only (clause 12.2). The Responsible Entity may transfer money paid by an Applicant from the Application Fund to the Responsible Entity for the purposes of the Project where the Responsible Entity has issued an Interest to the Applicant (clause 15.1). 55. Each Applicant has an interest in the Application Fund equal to the proportional interest that Applicant's Application Money bears to the total Application Money paid by all Applicants. However, an Applicant does not have any interest in any particular part of the Application Fund or in any Investment (clause 16.1). 56. Each Grower directly owns their Grower Interest, including: 57. The Grower's Interest does not include the Trees or any of the Improvements which will at all times remain the property of the Land Owner (clause 16.3). 58. Each Grower has an interest in the Proceeds Fund equal to the Grower's Proportion, which is defined as the proportion that the area of the Grower's established Macgroves bears to the total area of all established Macgroves registered to Growers in that Financial Year (clause 16.2). 59. Where an event occurs to which any insurance policies apply, the insurance proceeds will be dealt with as follows: 60. The Responsible Entity must harvest all of the Macadamia Nuts grown on Trees in each Grower's Macgrove in accordance with the Consolidated Management Agreements and may store, market and sell the Crop harvested in accordance with the terms of any Sale Agreement (clause 25.1). Macadamia Nuts grown during the term of the Project will be sold under the Nut in Shell Supply Agreement discussed in paragraphs 96 and 97 of this Ruling. 61. The Responsible Entity must pay into the Proceeds Fund: | Supplementary Constitution: 62. The principal purposes of this document are to firstly, change the name of the Constitution of the 2006 Macgrove Project, to the Constitution of the 2007 Macgrove Project and secondly, to amend the Constitution and Consolidated Management Agreement to provide for the situation where two entities participate in the Project as Joint Venturers. 63. Joint Venturers are known as First Joint Venturer and Second Joint Venturer, and are apportioned specific responsibilities, rights and entitlements under clause 35 of the Constitution. 64. Each of the First Joint Venturer and the Second Joint Venturer are responsible for the payment of Management Fees and Rent over the Term of the Project in the manner stated at paragraph 102 to 105 of this Ruling. Both the First Joint Venturer and the Second Joint Venturer are entitled to a Prescribed Proportion of 50% of the Joint Venture Assets, as defined in clause 1.1. | Compliance Plan: 65. The Plan describes how the Responsible Entity will operate the Project and ensure that it complies with the Corporations Act, the Constitution and with any other operating requirements set down by the board of Directors of the Responsible Entity. 66. The principal purpose of the Compliance Plan is to ensure that the interests of Growers are protected. The Plan sets out the systems and methods by which the Responsible Entity, its officers, agents, contractors and employees will ensure that the Project and the Responsible Entity continue to comply with all relevant parts of the Corporations Act and the Constitution and continuously monitor and review such compliance. | Supplementary Compliance Plan: 67. This Plan changes all references to the 2006 Macgrove Project in the Compliance Plan to the 2007 Macgrove Project. It also amends certain definitions in clause 1 to reflect the changes in the arrangement from the 2006 Macgrove Project. The 2006 Macgrove Project did not proceed because Minimum Subscription was not reached. | Leases: 68. Under the Lease of the land at 92 Kenzler Road, Sharon via Bundaberg (Kenzler Road Lease), in return for the 'Rent', Maccland leases the Land to Maccacorp for the Term of the Project (clause 2.1). The Land is located at Bundaberg, Queensland, being Lots 1 and 2 on RP110202, Lots 3 and 4 on RP866764 and Lot 1 on CP RL5669. The Term of the Lease is the period commencing on 30 September 2006 and ending 30 June 2028. The Rent is the total of rental received by Maccacorp under all sub lease agreements including, but not limited to the Sub Leases between Maccacorp and the Growers, which shall be due and payable on 1 July in each Financial Year commencing 1 July 2008 (clause 3). 69. Maccacorp entered into a Put and Call Option Lease Deed in relation to the Moore Park land. Under the terms of the Deed, Maccacorp had a right to require the Moore Park Landowner, to lease the Moore Park land to Maccacorp (for use in the Project). 70. The Put and Call Option was exercised on 9 March 2007 and the Moore Park Landowner and Maccacorp entered into the Moore Park Lease on 5 April 2007. 71. Under the Moore Park Lease, in return for the 'Rent', the Moore Park Landowner leases the Land to Maccacorp for the Term of the Project (clause 2.1). The Land is located at Moore Park, Queensland, being Lots 1 and 2 on RP52762, Lot 1 on RP155035 and Lot 9 on RL199897. The Term of the Moore Park Lease will be 21 years, ending on 30 June 2028. The Rent is the total of rental received by Maccacorp under all sub lease agreements including, but not limited to the Sub Leases between Maccacorp and the Growers, which shall be due and payable on 1 July in each Financial Year commencing 1 July 2008. 72. The Lessee may give the Lessors a notice asking the Lessors to grant the Lessee a further lease for the period of five years commencing on the day following the expiration of the initial Term of these Leases. This is known as the First Option Period. 73. The Lessee may give the Lessors a notice asking the Lessors to grant the Lessee a further lease for the period of four years commencing on the day following the expiration of the First Option Period. This is known as the Second Option Period. 74. Under the Leases, Maccacorp: 75. Under the Kenzler Road Lease, Maccland will provide Access Roads for use by Maccacorp and Maccacorp's employees and will maintain the supply of the Irrigation Water and will renew water allocations and licences as and when required (clauses 9.5 and 9.6). 76. Under the Moore Park Lease, the Moore Park Landowner will: 77. The Leases will be submitted for registration with the Registrar of Titles, Queensland. | Sub Leases: 78. Under the Sub Leases the Lessor leases to the Grower the Grower's established Macgrove together with the right to use in common with the Lessor and other participants in the Project the Common Area from the Commencement Date on and subject to the terms and conditions set out in the Sub Leases (clause 2). Common Area means those parts of the Land provided by the Lessor from time to time for common use by the Grower and the Lessor and/or other Growers who are occupants of the Land and is more particularly described in Item 5 of the Schedule. Caveats for the established Macgroves held by each Grower are to be submitted for registration within thirty days of execution of the Sub Leases. 79. Each Sub Lease will be entered at the same time. The commencement and expiry dates of each Sub Lease are as follows: 80. The Grower may give the Lessor a notice asking the Lessor to grant the Lessee a further lease for the period of five years commencing on the day following the expiration of the initial Term of the Third Sub Lease. This is known as the First Option Period. 81. The Grower may give the Lessor a notice asking the Lessor to grant the Lessee a further lease for the period of four years commencing on the day following the expiration of the First Option Period. This is known as the Second Option Period. 82. The Growers must pay to Maccacorp, in respect of each Financial Year during the Term, the Rent in accordance with Item 3 of the Schedule. There is no Rent payable for the First Financial Year. The Rent for the second and each successive Financial Year of the Term must be paid annually in advance on 1 July in each Financial Year, commencing on 1 July 2008. 83. Under the Sub Leases the Grower: 84. Unless inconsistent with the Management Plan the Grower will do or will cause to be done, the following: | Consolidated Management Agreement: 85. Under clauses 4 and 5 of this Agreement the Grower engages the Manager during the Term of the Project to perform all services necessary to maintain a macadamia nut tree orchard on the Grower's Macgrove, harvest the Macadamia Nuts and sell the Crop on behalf of the Grower. The Term of the Project commences on the Commencement Date (being the date of execution of the Consolidated Management Agreement) and is expected to end on 30 June 2028. 86. If the Grower exercises the first five year option to extend the term of the third Sub Lease, then the Term of this agreement is automatically deemed extended by five years. If the Grower exercises the second four year option to further extend the term of the third Sub Lease, then the Term of this agreement is automatically deemed extended by a further four years. 87. Specifically clause 5 of the Agreement states that the Manager will: 88. The Initial Orchard Maintenance Services which must be provided by the Manager in the first Financial Year are set out in Schedule 2 to the Consolidated Management Agreement and the Orchard Maintenance Services which must be provided by the Manager in the second and subsequent Financial Years are set out in Schedule 3 of that Agreement. 89. The Grower must pay the Management Fee to the Manager for the Orchard Services set out in clause 5. The Management Fee for each Financial Year is specified in Column 2 of Item 5 of Schedule 1. 80% of the Management Fee is in respect of performing, or causing to be performed, the Orchard Services and the remaining 20% of the Management Fee is remuneration payable to the Manager as Responsible Entity of the Project for managing that performance. The Management Fee is payable in advance on the date stated in Column 3 of Item 5 of Schedule 1. 90. The Manager will, at the Grower's cost, maintain with a reputable insurer a policy of insurance against public risk and occupier's liability and against damage to the Grower's Macgrove which is caused by fire or other insurable risks provided that in the opinion of the Manager the costs of any such insurance are economically justified. The Manager is not required to take out crop insurance unless specifically agreed between the Manager and the Grower from year to year. All such policies of insurance must be in the names of or note the interests of the Land Owner and the Grower (clause 12). | Pooling of amounts and distribution of the Proceeds Fund: 91. The Constitution (clause 25) set out provisions relating to the pooling of amounts from the sale of each Grower's Macadamia Nuts and the distribution of the Grower's Proportion of the Proceeds Fund from that sale or from insurance proceeds. This Product Ruling only applies where the following principles apply to those pooling and distribution arrangements: | Principal Subcontractor's Agreement: 92. Under this Agreement, Maccmanagement Pty Limited (Maccmanagement) has agreed to provide the Orchard Establishment Services as detailed in Schedule 1, establish the Orchard and provide all necessary services to maintain the Orchard on the Land including the Initial Orchard Maintenance Services and the Orchard Maintenance Services (as defined in the Consolidated Management Agreement) (clause 3). 93. The Orchard Establishment Services include the preliminary works, selection of suitable macadamia trees, the planting of the macadamia trees and installation of a modern cost effective irrigation system. 94. The Principal Subcontractor must complete the Orchard Establishment Services in respect of the Macgroves of each Grower by the time of acceptance of each such Grower's application to participate in the Project. 95. This Agreement commences on the Commencement Date (being the date of the Agreement) and ends on the second anniversary of the Commencement Date (Initial Term). By mutual agreement, the Initial Term may be extended by two year periods or for such other period as may be agreed by the Parties (clause 6). | Nut-In-Shell Supply Agreement: 96. Under this Agreement Maccacorp agrees to sell and MPC agrees to buy, all macadamia Nut-In-Shell produced on the Project Property from the date of the Agreement. 97. Each year MPC will pay to Maccacorp the average selling price per kilogram obtained by MPC for the finished product after deducting all reasonable expenses and provisions of MPC. | Custody Agreement: 98. Under this Agreement, Maccacorp appoints Perpetual Nominees Limited (Perpetual) as custodian of the Project Assets and Perpetual accepts that appointment. | Fees: 99. The fees payable under clause 14 of the Consolidated Management Agreement for each Macgrove are set out in Schedule 1, as follows: Instalment 1 (the Management Fee Indexed from the previous Financial Year); plus Instalment 2 (the amount, if any, by which the Grower's Proportion of the Orchard Operating Expenses [1] incurred in a Financial Year exceeds the amount of Instalment 1 for that Financial Year) Instalment 1: 1 July in each Financial Year; Instalment 2: within 7 days of receipt of the Orchard Operating Expenses Statement | Performance Incentive Fee: 100. The Grower must pay a Performance Incentive Fee where applicable (clause 14.6). The Performance Incentive Fee payable in each Financial Year, is 25% of any net proceeds of sale of the Crop attributable to a Macgrove that exceeds the Performance Incentive Threshold (as defined in the Consolidated Management Agreement) in the Financial Year (Item 7 of Schedule 1). | Rent: 101. The fee payable under clause 3 of the Sub Leases for each Macgrove is set out in Item 3 of Schedule 1, as follows: | Joint Venture: 102. Fees payable per Macgrove by a Grower who is in a Joint Venture are as stipulated in clause 35.5 of the Supplementary Constitution. Under this clause, the amounts of fees for which a Joint Venture Grower will be solely responsible are expressed as percentages of the fees outlined in paragraphs 99 to 102 of this Ruling. 103. The First Joint Venturer will be solely responsible for paying the following fees and other amounts: 104. The Second Joint Venturer will be solely responsible for paying the following fees and other amounts: 105. Each Joint Venturer is liable for paying their Prescribed Proportion (being defined in the Supplementary Constitution as 50% each) of any performance incentive fees and each will be entitled to the Prescribed Proportion of the Joint Venturer's Macadamia Nuts Crop and the Joint Venture Proceeds (clause 35.6 of the Supplementary Constitution). | Finance: 106. Growers can fund their involvement in the Project themselves, borrow from Maccfinance (a lender associated with the Responsible Entity) or borrow from an independent lender. Growers cannot rely on this Product Ruling if they enter into a finance agreement with Maccfinance that materially differs from that set out in the finance documents provided to the Tax Office by Maccacorp with the application for this Product Ruling. 107. Growers also cannot rely on this Product Ruling if Application Moneys are not paid in full on or before 15 June 2008 by the Grower or, on the Grower's behalf, by any lending institution, including Maccfinance. 108. Where Growers borrow from Maccfinance, all Application monies (both from Growers directly and from Maccfinance) will be paid directly to the Responsible Entity. Such application monies must be paid into the Application Fund on or before the issue date of the Interest. The finance made available by Maccfinance is offered on the following terms contained in the Indicative Term Sheet and 2007 Macgrove Project Finance Package: 109. In each case: 110. 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 8 August 2007 | Is the Grower carrying on a business?: 111. For the amounts set out in the Tables above to constitute allowable deductions the Grower's horticultural activities as a participant in the 2007 Macgrove Project (Late Growers) must amount to the carrying on of a business of primary production. 112. Where there is a business, or a future business, the gross proceeds from the sale of the nuts in shell will constitute gross assessable income in their own right. The generation of 'business income' from such a business, or future business, provides the backdrop against which to judge whether the outgoings in question have the requisite connection with the operations that more directly gain or produce this income. 113. For schemes such as that of the 2007 Macgrove Project (Late Growers), Taxation Ruling TR 2000/8 sets out in paragraph 89 the circumstances in which the Grower's activities can constitute the carrying on of a business. As TR 2000/8 sets out, these circumstances have been established in court decisions such as Commissioner of Taxation v. Lau (1984) 6 FCR 202; 84 ATC 4929; (1984) 16 ATR 55. 114. Generally, a Grower will be carrying on a business of horticulture, and hence primary production, if: 115. In this Project, each Grower enters into a Consolidated Management Agreement and Sub Leases. 116. Under the Sub Leases, each individual Grower will have rights over specific and identifiable areas totalling 0.4 hectares of land for the Term of the Project. Under the Sub Leases the Grower must use the land in question for the purpose of carrying out horticulture activities, and for no other purpose. The Sub Leases allows the Manager to come onto to the land to carry out its obligations under the Consolidated Management Agreement. 117. Under the Consolidated Management Agreement the Manager is engaged by the Grower to cultivate and maintain the Trees on the Grower's identifiable area of land during the Term of the Project. 118. The Manager is also engaged to harvest and sell, on the Grower's behalf, the nuts in shell grown on the Grower's macadamia trees. 119. The general indicators of a business, as used by the Courts, are described in Taxation Ruling TR 97/11. Positive findings can be made from the Project's description for all the indicators. 120. The activities that will be regularly carried out during the term of the Project demonstrate a significant commercial purpose. Based on reasonable projections, a Grower in the Project will derive assessable income from the sale of the nuts in shell that will return a before-tax profit, that is, a profit in cash terms that does not depend in its calculation on the fees in question being allowed as a deduction. 121. The pooling of nuts in shell from macadamia trees grown on the Grower's Macgrove with the nuts in shell of other Growers is consistent with general horticultural practices. Each Grower's proportionate share of the sale proceeds of the pooled nuts in shell will reflect the proportion of the macadamia trees contributed from their Macgrove. 122. The Manager's services are also consistent with general horticultural practices. They are of the type ordinarily found in horticulture ventures that would commonly be said to be businesses. While the size of a Macgrove is relatively small, it is of a size and scale to allow it to be commercially viable. 123. The Grower's degree of control over the Manager as evidenced by the Consolidated Management Agreement and supplemented by the Corporations Act, is sufficient. During the Term of the Project, the Manager will provide the Grower with regular progress reports on the Grower's Macgrove and the activities carried out on the Grower's behalf. Growers are able to terminate arrangements with the Manager in certain instances, such as cases of default or neglect. 124. The horticulture activities, and hence the fees associated with their procurement, are consistent with an intention to commence regular activities that have an 'air of permanence' about them. For the purposes of this Ruling, the Growers horticultural activities in the 2007 Macgrove Project (Late Growers) will constitute the carrying on of a business. | Section 8-1: 125. Consideration of whether the Management Fee and Rent are deductible under section 8-1 begins with the first limb of the section. This view proceeds on the following basis: 126. The Management Fee and Rent associated with the horticulture activities will relate to the gaining of income from the Grower's business of horticulture (see above), and hence have a sufficient connection to the operations by which income (from the harvesting and sale of nuts in shell) is to be gained from this business. They will thus be deductible under the first limb of section 8-1. Further, no 'non-income producing' purpose in incurring the fee is identifiable from the scheme. The fee appears to be reasonable. There is no capital component of the Management Fee. The tests of deductibility under the first limb of section 8-1 are met. The exclusions do not apply. | Section 8-1: (i) Growers who use Maccfinance as the finance provider 127. Some Growers may finance their participation in the Project through a loan facility with Maccfinance. Whether the resulting interest costs are deductible under section 8-1 depends on the same reasoning as that applied to the deductibility of the Management Fees and Rent. 128. The interest incurred for the year ended 30 June 2008 and in subsequent years of income will be in respect of a loan to finance the Grower's business operations - the cultivation and growing of macadamia trees and the sub lease of the land on which the trees will have been planted - that will continue to be directly connected with the gaining of 'business income' from the Project. Such interest will, therefore, have a sufficient connection with the gaining of assessable income to be deductible under section 8-1. (ii) Growers who DO NOT use Maccfinance as the finance provider 129. The deductibility of interest incurred by Growers who finance their participation in the Project through a loan facility with a bank or financier other than Maccfinance is outside the scope of this Ruling. Product Rulings only deal with schemes where all details and documentation have been provided to, and examined by the Tax Office. | Sections 82KZL to 82KZMF: 130. The prepayment provisions contained in Subdivision H of Division 3 of Part III of the ITAA 1936 affect the timing of deductions for certain prepaid expenditure. These provisions apply to certain expenditure incurred under an agreement in return for the doing of a thing under the agreement (for example, the performance of management services or the leasing of land) that will not be wholly done within the same year of income as the year in which the expenditure is incurred. If expenditure is incurred to cover the provision of services to be provided within the same year, then it is not expenditure to which the prepayment rules apply. | Application of the prepayment provisions to this Project: 131. Under the scheme to which this Product Ruling applies Management Fees and Rent are incurred annually and interest on Maccfinance loans is incurred monthly in arrears. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this scheme. 132. However, sections 82KZME and 82KZMF of the ITAA 1936 may have relevance if a Grower in this Project prepays all or some of the expenditure payable under the Consolidated Management Agreement and/or the Sub Leases or prepays interest under any loan agreement, including loan agreements with financiers other than Maccfinance. Where such a prepayment is made these prepayment provisions will also apply to 'STS taxpayers' because there is no specific exclusion contained in section 82KZME that excludes them from the operation of section 82KZMF. 133. As noted in the Ruling section above, Growers who prepay Management Fees and Rent or interest are not covered by this Product Ruling and may instead request a private ruling on the tax consequences of their participation in this Project. | Division 40: 134. Any part of the expenditure of a Grower that is attributable to acquiring an asset or advantage of an enduring kind is generally capital or capital in nature and will not be an allowable deduction under section 8-1. In this Project, expenditure attributable to the establishment of the macadamia trees is of a capital nature. This expenditure falls for consideration under Division 40. 135. The tax treatment of capital expenditure has been dealt with in a representative way in paragraph 23 of this Ruling in the Tables and the accompanying Notes. | Section 35-55 - exercise of Commissioner's discretion: 136. In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the income years 30 June 2008 to 30 June 2010 (for First Joint Venturers) and 30 June 2008 to 30 June 2014 (for all other Growers) the Commissioner has applied the principles set out in Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses. Accordingly, based on the evidence supplied, the Commissioner has determined that for those income years ended 30 June 2008 up to and including 30 June 2010 and for those income years ended 30 June 2008 up to and including 30 June 2014: 137. 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: 138. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits(s)'. Insufficient 'additional benefits' will be provided to trigger the application of section 82KL. It will not apply to deny the deduction otherwise allowable under section 8-1 of the ITAA 1997. | Part IVA - general tax avoidance provisions: 139. 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). 140. The 2007 Macgrove Project (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 22 and 23 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. 141. 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 nuts in shell. 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. 142. The following is a detailed contents list for this Ruling: Not previously issued as a draft


Appendix: Is the Grower carrying on a business?: 111. For the amounts set out in the Tables above to constitute allowable deductions the Grower's horticultural activities as a participant in the 2007 Macgrove Project (Late Growers) must amount to the carrying on of a business of primary production. 112. Where there is a business, or a future business, the gross proceeds from the sale of the nuts in shell will constitute gross assessable income in their own right. The generation of 'business income' from such a business, or future business, provides the backdrop against which to judge whether the outgoings in question have the requisite connection with the operations that more directly gain or produce this income. 113. For schemes such as that of the 2007 Macgrove Project (Late Growers), Taxation Ruling TR 2000/8 sets out in paragraph 89 the circumstances in which the Grower's activities can constitute the carrying on of a business. As TR 2000/8 sets out, these circumstances have been established in court decisions such as Commissioner of Taxation v. Lau (1984) 6 FCR 202; 84 ATC 4929; (1984) 16 ATR 55. 114. Generally, a Grower will be carrying on a business of horticulture, and hence primary production, if: 115. In this Project, each Grower enters into a Consolidated Management Agreement and Sub Leases. 116. Under the Sub Leases, each individual Grower will have rights over specific and identifiable areas totalling 0.4 hectares of land for the Term of the Project. Under the Sub Leases the Grower must use the land in question for the purpose of carrying out horticulture activities, and for no other purpose. The Sub Leases allows the Manager to come onto to the land to carry out its obligations under the Consolidated Management Agreement. 117. Under the Consolidated Management Agreement the Manager is engaged by the Grower to cultivate and maintain the Trees on the Grower's identifiable area of land during the Term of the Project. 118. The Manager is also engaged to harvest and sell, on the Grower's behalf, the nuts in shell grown on the Grower's macadamia trees. 119. The general indicators of a business, as used by the Courts, are described in Taxation Ruling TR 97/11. Positive findings can be made from the Project's description for all the indicators. 120. The activities that will be regularly carried out during the term of the Project demonstrate a significant commercial purpose. Based on reasonable projections, a Grower in the Project will derive assessable income from the sale of the nuts in shell that will return a before-tax profit, that is, a profit in cash terms that does not depend in its calculation on the fees in question being allowed as a deduction. 121. The pooling of nuts in shell from macadamia trees grown on the Grower's Macgrove with the nuts in shell of other Growers is consistent with general horticultural practices. Each Grower's proportionate share of the sale proceeds of the pooled nuts in shell will reflect the proportion of the macadamia trees contributed from their Macgrove. 122. The Manager's services are also consistent with general horticultural practices. They are of the type ordinarily found in horticulture ventures that would commonly be said to be businesses. While the size of a Macgrove is relatively small, it is of a size and scale to allow it to be commercially viable. 123. The Grower's degree of control over the Manager as evidenced by the Consolidated Management Agreement and supplemented by the Corporations Act, is sufficient. During the Term of the Project, the Manager will provide the Grower with regular progress reports on the Grower's Macgrove and the activities carried out on the Grower's behalf. Growers are able to terminate arrangements with the Manager in certain instances, such as cases of default or neglect. 124. The horticulture activities, and hence the fees associated with their procurement, are consistent with an intention to commence regular activities that have an 'air of permanence' about them. For the purposes of this Ruling, the Growers horticultural activities in the 2007 Macgrove Project (Late Growers) will constitute the carrying on of a business. | Section 8-1: 125. Consideration of whether the Management Fee and Rent are deductible under section 8-1 begins with the first limb of the section. This view proceeds on the following basis: 126. The Management Fee and Rent associated with the horticulture activities will relate to the gaining of income from the Grower's business of horticulture (see above), and hence have a sufficient connection to the operations by which income (from the harvesting and sale of nuts in shell) is to be gained from this business. They will thus be deductible under the first limb of section 8-1. Further, no 'non-income producing' purpose in incurring the fee is identifiable from the scheme. The fee appears to be reasonable. There is no capital component of the Management Fee. The tests of deductibility under the first limb of section 8-1 are met. The exclusions do not apply. | Section 8-1: (i) Growers who use Maccfinance as the finance provider 127. Some Growers may finance their participation in the Project through a loan facility with Maccfinance. Whether the resulting interest costs are deductible under section 8-1 depends on the same reasoning as that applied to the deductibility of the Management Fees and Rent. 128. The interest incurred for the year ended 30 June 2008 and in subsequent years of income will be in respect of a loan to finance the Grower's business operations - the cultivation and growing of macadamia trees and the sub lease of the land on which the trees will have been planted - that will continue to be directly connected with the gaining of 'business income' from the Project. Such interest will, therefore, have a sufficient connection with the gaining of assessable income to be deductible under section 8-1. (ii) Growers who DO NOT use Maccfinance as the finance provider 129. The deductibility of interest incurred by Growers who finance their participation in the Project through a loan facility with a bank or financier other than Maccfinance is outside the scope of this Ruling. Product Rulings only deal with schemes where all details and documentation have been provided to, and examined by the Tax Office. | Sections 82KZL to 82KZMF: 130. The prepayment provisions contained in Subdivision H of Division 3 of Part III of the ITAA 1936 affect the timing of deductions for certain prepaid expenditure. These provisions apply to certain expenditure incurred under an agreement in return for the doing of a thing under the agreement (for example, the performance of management services or the leasing of land) that will not be wholly done within the same year of income as the year in which the expenditure is incurred. If expenditure is incurred to cover the provision of services to be provided within the same year, then it is not expenditure to which the prepayment rules apply. | Application of the prepayment provisions to this Project: 131. Under the scheme to which this Product Ruling applies Management Fees and Rent are incurred annually and interest on Maccfinance loans is incurred monthly in arrears. Accordingly, the prepayment provisions in sections 82KZME and 82KZMF of the ITAA 1936 have no application to this scheme. 132. However, sections 82KZME and 82KZMF of the ITAA 1936 may have relevance if a Grower in this Project prepays all or some of the expenditure payable under the Consolidated Management Agreement and/or the Sub Leases or prepays interest under any loan agreement, including loan agreements with financiers other than Maccfinance. Where such a prepayment is made these prepayment provisions will also apply to 'STS taxpayers' because there is no specific exclusion contained in section 82KZME that excludes them from the operation of section 82KZMF. 133. As noted in the Ruling section above, Growers who prepay Management Fees and Rent or interest are not covered by this Product Ruling and may instead request a private ruling on the tax consequences of their participation in this Project. | Division 40: 134. Any part of the expenditure of a Grower that is attributable to acquiring an asset or advantage of an enduring kind is generally capital or capital in nature and will not be an allowable deduction under section 8-1. In this Project, expenditure attributable to the establishment of the macadamia trees is of a capital nature. This expenditure falls for consideration under Division 40. 135. The tax treatment of capital expenditure has been dealt with in a representative way in paragraph 23 of this Ruling in the Tables and the accompanying Notes. | Section 35-55 - exercise of Commissioner's discretion: 136. In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the income years 30 June 2008 to 30 June 2010 (for First Joint Venturers) and 30 June 2008 to 30 June 2014 (for all other Growers) the Commissioner has applied the principles set out in Taxation Ruling TR 2001/14 Income tax: Division 35 - non-commercial business losses. Accordingly, based on the evidence supplied, the Commissioner has determined that for those income years ended 30 June 2008 up to and including 30 June 2010 and for those income years ended 30 June 2008 up to and including 30 June 2014: 137. 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: 138. The operation of section 82KL of the ITAA 1936 depends, among other things, on the identification of a certain quantum of 'additional benefits(s)'. Insufficient 'additional benefits' will be provided to trigger the application of section 82KL. It will not apply to deny the deduction otherwise allowable under section 8-1 of the ITAA 1997. | Part IVA - general tax avoidance provisions: 139. 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). 140. The 2007 Macgrove Project (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 22 and 23 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. 141. 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 nuts in shell. 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. | $11,000 See Notes (i), (ii) & (iii) | $2,200 See Notes (i), (ii) & (iii) | Must be calculated See Notes (i), (ii) & (iii) | $792 See Notes (i), (ii) & (iii) | Interest on loans with Maccfinance | As incurred See Note (iv) | Borrowing costs for loans with Maccfinance | Must be calculated See Note (v) | Establishment of macadamia trees | 92 Kenzler Road, Sharon via Bundaberg, Queensland and 351-353 Booyang Road, Moore Park, Queensland | Type of business to be carried on by each participant | Number of hectares offered for cultivation | Number of trees per Macgrove | $11,000 Management Fee per Macgrove | Annual Management Fees and Annual Rent | Orchard Operating Expenses, Annual Insurance premiums and Performance Incentive Fee | Date of execution of first Sub Lease (being the date of acceptance of Grower into Project) | 10 years after the commencement date of the first Sub Lease | 10 years and one day after the commencement of the first Sub Lease | 9 years after the commencement date of the second Sub Lease | 19 years and one day after the commencement of the first Sub Lease | One year after the commencement date of the third Sub Lease | Financial Year of Project | As for Financial Year 3 Indexed by the percentage increase (if any) in the CPI during the 12 months preceding the date on which indexation is to occur | As for Financial Year 5 Indexed as above | As for Financial Year 6 Indexed as above | $792 Indexed by the percentage increase (if any) in the CPI during the 12 months preceding the date on which indexation is to occur | The amount of Rent payable for the previous Financial Year Indexed as above | The amount of Rent payable in the last Financial Year of the first Sub Lease Indexed as above | 1 July of the first Financial Year of this second Sub Lease | The amount of Rent payable in the last Financial Year of the second Sub Lease Indexed as above | 1 July of the Financial Year in which this third Sub Lease commences | Investment amount able to be borrowed | Up to 90% of GST exclusive Application Fee | Loan Approval and Drawdown Date | 3 years of equal monthly repayments payable in arrears | 4 years of equal monthly repayments payable in arrears | 5 years of equal monthly repayments payable in arrears | Deductions for Management Fees, Rent, interest and borrowing costs | Deductions for capital expenditure | Division 35 - deferral of losses from non-commercial business activities | Pooling of amounts and distributions of the Proceeds Fund | Deductibility of Management Fees and Rent | Expenditure of a capital nature | Appendix 2 - Detailed contents list


Related rulings: TR 97/11 TR 98/22 TR 2000/8 TR 2001/14 PR 2006/163
Legislative references: ITAA 1936 82KL ITAA 1936 Pt III Div 3 Subdiv H ITAA 1936 82KZL ITAA 1936 82KZM ITAA 1936 82KZMA ITAA 1936 82KZMB ITAA 1936 82KZMC ITAA 1936 82KZMD ITAA 1936 82KZME ITAA 1936 82KZMF ITAA 1936 Pt IVA ITAA 1936 177A ITAA 1936 177C ITAA 1936 177D ITAA 1936 177D(b) ITAA 1997 6-5 ITAA 1997 8-1 ITAA 1997 17-5 ITAA 1997 25-25 ITAA 1997 Div 27 ITAA 1997 Div 35 ITAA 1997 35-10 ITAA 1997 35-10(2) ITAA 1997 35-55 ITAA 1997 35-55(1)(b) ITAA 1997 Div 40 ITAA 1997 40-515(1)(b) ITAA 1997 40-520(2) ITAA 1997 40-525(2) ITAA 1997 40-545 TAA 1953 TAA 1953 Sch 1 357-75(1) Copyright Act 1968 Corporations Act 2001 Corporations Act 2001 11 Corporations Act 2001 Pt 5C.1 SISA 1993
Case references: Commissioner of Taxation v. Lau (1984) 6 FCR 202 84 ATC 4929 (1984) 16 ATR 55
Subject references: advance deductions and expenses for certain forestry expenditure carrying on a business commencement of business fee expenses forestry agreement interest expenses management fees non-commercial losses producing assessable income product rulings public rulings seasonally dependent agronomic activity tax avoidance tax benefits under tax avoidance schemes tax shelters tax shelters project taxation administration