Income tax: Kiri Park Project No. 2 Second Prospectus - NCL discretion

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 Product Ruling relates. All legislative references in this Product 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 Kiri Park Project No. 2 Second Prospectus 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.

The class of entities who can rely on those tax benefits are referred to as Growers. Growers will be those entities that are accepted to participate in the scheme specified below and who executed the relevant Project Agreements set out in the Arrangement part of Product Ruling PR 2002/82 on or after 5 June 2002 and on or before 30 June 2002. 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.

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: • intend to terminate their involvement in the scheme prior to its completion, or who otherwise do not intend to derive assessable income from it; • were accepted into this Project before 5 June 2002 or after 30 June 2002; • have elected to market and sell the timber grown on their Woodlots(s); or • participate in the scheme through offers made other than through the Product Disclosure Statement.

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 its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 49 of Product Ruling PR 2002/82.

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 Product Ruling applies prospectively from 13 February 2008, the date this Product Ruling is made. It applies to the specified class of entities that entered into the scheme set out in paragraphs 16 to 49 of Product Ruling 2002/82 between 5 June 2002 and 30 June 2002. This Product Ruling provides advice on the availability of tax benefits to the specified class of entities for the 2008-09 income year.

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 ruling relates has not begun; and • the scheme to which the ruling relates 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 this Product Ruling and, to that extent, this Product Ruling will have no effect.

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.

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 Product Ruling PR 2002/82 continue to apply to participants who are within the specified class of entities to which the Product Ruling applied and who entered into the specified scheme between 5 June 2002 and 30 June 2002. 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 5 June 2002 and 30 June 2002 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 16 to 49 of Product Ruling PR 2002/82, the Commissioner will exercise the discretion in paragraph 35-55(1)(b) for Growers for the 2008-09 income year. 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.

The scheme that is the subject of this Product Ruling is specified in paragraphs 16 to 49 of Product Ruling PR 2002/82.

In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the 2008-09 income year, the Commissioner has determined that for those income years: • 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 Product Ruling during the income years specified. If the Project is carried out in a materially different way to that described in the Product 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 Product Ruling: Paragraph What this Ruling is about 1 Class of entities 2 Superannuation Industry (Supervision) Act 1993 5 Qualifications 6 Date of effect 9 Changes to the law 14 Note to promoters and advisers 16 Ruling 17 Continuing application of Product Ruling PR 2002/82 17 Division 35 - deferral of losses from non-commercial business activities 18 Section 35-55 - exercise of Commissioner's discretion 18 Scheme 19 Appendix 1 - Explanation 20 Division 35 - deferral of losses from non-commercial business activities 20 Section 35-5 - exercise of the Commissioner's discretion 20 Appendix 2 - Detailed contents list 23