Agribusiness managed investment schemes (non Division 394 schemes)
Some horticultural schemes provide for fees to be paid to a responsible entity/manager to supervise or inspect the establishment of the scheme. The establishment typically includes capital infrastructure items such as irrigation, trellising and the establishment of horticultural plants.
The ATO view of whether such fees are deductible under section 8-1 will depend on the facts of each situation. Generally, to the extent that such services are provided prior to the full establishment of the business infrastructure, they would be regarded as part of that establishment and, as a result capital in nature.
Accordingly, only where it is clear (or we can satisfy ourselves) that the capital structure required to conduct the business will be fully established prior to the entry of the participant into the business, will any such expenditure incurred for the manager to undertake a certification process be deductible to the participant.
Where it is not certain (or we cannot satisfy ourselves sufficiently) that the capital structure required to conduct the business will be fully established at the time the participant enters the scheme, any expenditure incurred for supervision or certification may be capital in nature, because it will be considered to be part of the establishment of the business.
In the latter case, it will be necessary to establish the component that is capital and apportion that amount from the deductible management fee. If we are unable to determine the amount of the capital component, we will refuse to rule on the grounds that we cannot provide certainty to all participants.