Income tax: does a change of Responsible Entity of a registered agricultural managed investment scheme affect the tax outcomes for participants if the arrangement continues to be implemented in accordance with the relevant product ruling?

No. Where the managed investment scheme (MIS) continues to be carried out in accordance with the terms of the relevant product ruling, including under the management of an administrator, receiver or new Responsible Entity (RE), the ruling will continue to apply. That is, the Commissioner continues to be bound by the ruling and a participant will continue to be able to rely on the ruling (section 357-60 of Schedule 1 of the Taxation Administration Act 1953 ).

However, where any change results in there being a material difference in the implementation of the scheme, the participant will not be able to rely on the product ruling for the scheme.

Tane invested in a MIS in 2007, and claimed deductions according to the terms of the relevant product ruling. In 2009, due to the insolvency of the former RE, a new RE was appointed on terms which included a variation to the on going charges to be levied on investors under the management agreement. After reconsidering the application of section 8-1 and Division 35 of the Income Tax Assessment Act 1997, the Commissioner concluded that the change did not constitute a material difference, and issued an Addendum to the original product ruling in confirmation. Accordingly, Tane can continue to claim deductions for ongoing charges, in accordance with the Addendum .

This draft Determination applies to participants in schemes that are either subject to a current product ruling, or were subject to a product ruling which has been withdrawn with effect from immediately before any material difference occurred.

When the final Determination is issued, it is proposed to apply both before and after its date of issue. However, the Determination will not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 75 to 77 of Taxation Ruling TR 2006/10).

The appointment of a new RE, an administrator or receiver does not, of itself, result in the implementation of a scheme in a materially different way to that described in the product ruling. However, if the appointment of the new RE also results in a change in the activities/work conducted under the various agreements that make up the MIS, then the appointment of the new RE may result in there being a material difference to the scheme ruled on in the relevant product ruling.

A difference is material if it results in a tax outcome different to that set out in the product ruling (see paragraph 19 of PR 2007/71).

Where there is a material difference in the scheme, the product ruling will be withdrawn. The consequences of a product ruling being withdrawn will depend on the circumstances under which the material difference arises and the time when it occurred. This will be explained in any notice of withdrawal. Where the difference is not material, an Addendum to the Product ruling will be issued to confirm the situation.

Where a withdrawal occurs, the ruling may be taken to have never applied because the relevant arrangement never came into existence. Where the withdrawal is such that the ruling is taken to never have applied, entities participating in the scheme are not able to rely on the ruling.

Alternatively, where the arrangement commences but subsequently materially changes from the ruled scheme, the withdrawal may take effect from immediately before the time the material difference occurred. This may enable participants to be able to rely on the ruling in relation to deductions already incurred and claimed.

You are invited to comment on this draft Determination. Please forward your comments to the contact officer by the due date.

A compendium of comments is also prepared for the consideration of the relevant Rulings Panel or relevant tax officers. An edited version (names and identifying information removed) of the compendium of comments will also be prepared to: • provide responses to persons providing comments; and • publish on the Tax Office website at www.ato.gov.au. Please advise if you do not want your comments included in the edited version of the compendium. Due date: 30 October 2009 Contact officer details have been removed following publication of the final ruling.