Income tax: 1996 Timbercorp Eucalypts Project

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 '1996 Timbercorp Eucalypts Project' or simply as 'the Project'.

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.

The class of entities who can rely on those tax benefits consists of entities that were accepted to participate in the scheme between 9 April 1996 and 8 April 1997 and that executed relevant Project Agreements on or before 8 April 1997. 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.

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.

The class of entities defined in this Product Ruling may rely on it provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 14 to 36 of Product Ruling PR 2001/166.

If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: • this Product Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled; and • this Product Ruling may be withdrawn or modified.

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This Ruling applies for the income year ending 30 June 2006 for Growers who, between 9 April 1996 and 8 April 1997, entered into the scheme that is set out in paragraphs 14 to 36 of PR 2001/166.

However, the Product Ruling only applies to the extent that: • there is no change in the scheme or in the entity's involvement in the scheme; • it is not later withdrawn by notice in the Gazette; or • the relevant provisions are not amended.

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)).

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: • the income year or other period to which the rulings relate has not begun; and • the scheme to which the rulings relate has not begun to be carried out. 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).

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 the Ruling and, to that extent, this Product Ruling will have no effect.

Entities accepted to participate 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.

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.

Although now withdrawn, the tax benefits set out in PR 2001/166 continue to apply to participants who are within the specified class of entities to which the Ruling applied and who entered into the specified scheme between 9 April 1996 and 8 April 1997. This is subject to there being no material difference in the scheme or in the entities' involvement in the scheme.

A Grower who is an individual accepted into the Project between 9 April 1996 and 8 April 1997 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 in paragraphs 14 to 36 of PR 2001/166, the Commissioner will exercise the discretion in paragraph 35-55(1)(b) as follows: • for a Grower whose Woodlot was planted in 1996, the income year ended 30 June 2006; and • for a Grower whose Woodlot was planted in 1997, the income year ended 30 June 2006.

The conditional exercise of this discretion will allow a loss arising from a Grower's participation in the Project to be offset against the Grower's other assessable income in the income year specified in paragraph 16 of this Ruling.

The scheme that is the subject of this Ruling is described in paragraphs 14 to 36 of PR 2001/166 (now withdrawn). A copy of PR 2001/166 can be obtained on the Tax Office's internet site at http://www.ato.gov.au.

In deciding to exercise the discretion in paragraph 35-55(1)(b) the Commissioner has relied upon the following documents: • correspondence dated 29 May 2007, 24 July 2007 and 12 October 2007; • copy of the Annual Report to Growers dated 30 September 2005 and the 2006 Annual Grower Report; and • up-dated Grower cash flow summaries.

In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the income year ended 30 June 2006, based on the evidence supplied, the Commissioner has determined that for this income year: • it is because of its nature the business activity of a Grower will not satisfy one of the four tests in Division 35; and • there is an objective expectation that within a period that is commercially viable for the afforestation industry, a Grower's business activity will satisfy one of the four tests set out in Division 35 or produce a taxation profit.

A Grower who would otherwise be required to defer a loss arising from their participation in the Project under subsection 35-10(2) until a later income year is able to offset that loss against their other assessable income.

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.

The following is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Class of entities 2 Superannuation Industry (Supervision) Act 1993 4 Qualifications 5 Date of effect 8 Changes in the law 12 Note to promoters and advisers 14 Ruling 15 Continuing application of PR 2001/166 15 Division 35 - deferral of losses from non-commercial business activities 16 Section 35-55 - exercise of Commissioner's discretion 16 Scheme 18 Appendix 1 - Explanation 20 Division 35 - deferral of losses from non-commercial business activities and the Commissioner's discretion 20 Appendix 2 - Detailed contents list 23