Income tax: Black Truffle Project 2001

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 Black Truffle Project 2001 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. Although subscriptions for the Project could be accepted until 31 May 2002, Agreements received during the period 23 June 2001 to 30 June 2001 were not executed until 1 July 2001. Therefore, Growers will be those entities that were 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 2001/45: • on or after 18 April 2001 and on or before 22 June 2001 (Year 2001 Growers); and • at any time between 1 July 2001 and 31 May 2002 (Year 2002 Growers). In addition, 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; • In the case of Year 2001 Growers, were accepted into the Project before 18 April 2001 or after 22 June 2001; • In the case of Year 2002 Growers, were accepted into the Project before 1 July 2001 or after 31 May 2002; or • participate in the Project through offers made other than under one of the four categories in subsections 708(1) to 708(10) of the Corporations Act 2001 .

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 15 to 44 of Product Ruling PR 2001/45.

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 29 April 2009, the date this Product Ruling is made. It applies to the specified class of entities that entered into the scheme set out in paragraphs 15 to 44 of Product Ruling PR 2001/45 between 18 April and 22 June 2001 in the case of Year 2001 Growers, or 1 July 2001 to 31 May 2002 for Year 2002 Growers.

However the Product Ruling only applies to the extent that there is no change in the scheme or in the entities' involvement in the scheme.

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 2001/45 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 18 April and 22 June 2001 in the case of Year 2001 Growers, or 1 July 2001 to 31 May 2002 for Year 2002 Growers. This is subject to there being no material difference in the scheme or in the entities' involvement in the scheme.

A Grower who will stay in the Project until its completion is considered to be carrying on a business of primary production. Such a Grower, who is an individual and was accepted into the Project between 18 April and 22 June 2001 in the case of Year 2001 Growers, or 1 July 2001 to 31 May 2002 for Year 2002 Growers, may make losses from the Project that may be affected by the loss deferral rule in section 35-10 in Division 35.

The discretion in paragraph 35-55(1)(b) will be exercised for such Growers to whom the loss deferral rule would otherwise apply: • for Year 2001 Growers, for the 2008 to 2010 income years; • for Year 2002 Growers, for the 2009 to 2011 income years.

Exercise of the discretion in this case however is also conditional on the Project continuing to being carried out in the manner described in paragraphs 15 to 44 of Product Ruling PR 2001/45, but will allow Growers referred to who make losses, to offset them against their other assessable income in the income years in which those losses arise.

The scheme that is the subject of this Product Ruling is specified in paragraphs 15 to 44 of Product Ruling PR 2001/45. It also incorporates the following documents: • Correspondence and information received 1 October and 17 December 2008, and 16 February and 26 March 2009.

In deciding to exercise the discretion in paragraph 35-55(1)(b) on a conditional basis for the 2008 to 2010 income years for Year 2001 Growers, and for the 2009 to 2011 income years for Year 2002 Growers, based on the evidence supplied, 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 truffle growing 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) for Growers who will stay in the Project until its completion is conditional on the Project being carried on in the manner described in Product Ruling PR 2001/45 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 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 in the law 11 Note to promoters and advisers 13 Ruling 14 Continuing application of Product Ruling PR 2001/45 14 Division 35 - deferral of losses from non-commercial business activities 15 Section 35-55 - exercise of Commissioner's discretion 15 Scheme 18 Appendix 1 - Explanation 19 Division 35 - deferral of losses from non-commercial business activities 19 Section 35-55 - exercise of the Commissioner's discretion 19 Appendix 2 - Detailed contents list 22