Unestablished schemes
These are schemes where participants lease/licence an area of land, and contract with the responsible entity/manager to have a business established on their behalf, after they commence their participation in the scheme. The fee structure and the level of services to be provided by 30 June will be examined to ensure that we can provide certainty to participants about the application of the prepayment provisions. With regard to the comments made by Merkyl J in Carey v Field (2002) 122 FCR 538; 2002 ATC 4837; (2002) 51 ATR 40, we must be satisfied that the services in the initial period are capable of being performed by 30 June.
Consideration needs to be given not only to whether there is sufficient time to perform the services but also to whether the timing is right for performing the services. For example, depending on the type of tree and the location of where it is to be planted it may be recommended by the industry concerned that spring rather winter is the preferred time for planting.
In relation to these schemes, we will accept a closing date of 31 May. However, dependent on the facts of the case and the level of services to be provided, the closing date may be extended to 15 June. A closing date after 15 June will not be accepted.
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Initial period lease/licence fees
For many schemes, the level of the initial lease/licence fee is the same as later years, even though it is for the lease or licence of land for a substantially shorter period of time - that is, the period to which the payment relates may be one month or less. In such cases, the amount of the initial lease fee may not be fully deductible by participants. In these cases, a portion of the fee will be treated as a premium which is capital in nature, or the prepayment provisions will apply to the expenditure, depending on the facts of the case.
In cases where the initial lease fee has been inflated to reduce the level of lease fees in subsequent years, the prepayment provisions will apply to apportion the initial lease fee over the term of the scheme or 10 years, whichever is the less.
Part of the initial lease fee will be considered to be a premium, and hence capital in nature, if there is evidence that the lease fees for subsequent years are commercially realistic and have not been reduced as a result of the higher initial lease fee. In such cases, participants will only be entitled to claim a deduction for that part of the fee which is not capital in nature.
These principles apply equally to other rights under contract (for example, licences) which provide participants with an interest in a scheme.
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