Reasonable benefit limit - calculation of 'salary'.

Can a taxpayer exclude a loss incurred from a forestry business from the calculation of 'salary' for reasonable benefit limit (RBL) purposes.

No, the loss from forestry operations cannot be excluded from the calculation of 'salary' for RBL purposes.

The taxpayer requested an arm's length salary determination.

The Commissioner did not accept the taxpayer as an associate and stated that business losses that incurred from a forestry business are included as part of salary.

Later, the taxpayer objected to the first determination and requested a further determination to be made for the year in question.

The taxpayer is employed in the public sector. The taxpayer participated in a primary production venture and commenced a forestry business in the 1992 year. In that year, a loss was incurred in relation to the establishment phase of the forestry business.

The taxpayer carried on the forestry business as part of a project. The forestry business is fully managed for the taxpayer by a company that is not associated with the taxpayer. The taxpayer spends very little time engaged in the business; less than one hour per week.

Individual taxpayers have received favourable binding private rulings in relation to deductions claimed on the same basis as the taxpayer. Afforestation scheme participants have been accepted as carrying on a business for income tax purposes.

The taxpayer requested that the Commissioner determine an arm's length salary pursuant to paragraph 47(3)(c) of the Income Tax Regulations 1936 (ITR), ignoring the loss from forestry operations.

'Salary' for RBL purposes is defined in subregulation 47(1) of the ITR subject to subregulations 47(3) and (4) of the ITR.

Subregulation 47(3) of the ITR expands the definition of 'salary' in subregulation 47(1) to include a person's share of net business income or net business losses where the person carries on a business either alone or in partnership with another.

The amount paid to the afforestation scheme Manager is an allowable deduction as all participants are carrying on a business. Consequently, the loss is considered to be 'net business losses' as defined in subregulation 47(1) of the ITR.

The loss from forestry operations is to be included in working out the taxpayer's salary.