Product Ruling

PR 2004/114W

Income tax: Great Southern Plantations 2005 Project - (Pre 30 June Growers)

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Notice of Withdrawal

Product Ruling PR 2004/114 is withdrawn with effect from today.

1. PR 2004/114 sets out the Commissioner's opinion on the tax consequences for persons participating in the Great Southern Plantations 2005 Project - (Pre 30 June Growers) ('the Project'), a forestry managed investment scheme, entered into for the purpose of commercial growing of Hardwood species for the production of short fibre hardwood woodchips for use in the paper industry.

2. PR 2004/114 ceased to have effect after 30 June 2007.

Overview

3. The Responsible Entity, Gunns Plantations Limited (in liquidation) advised that as part of the liquidation process of this entity, the Growers' rights, titles and interest in the Project were disposed of.

4. This withdrawal notice sets out the tax outcomes for Growers or their associates arising as a consequence of the disposal.

Assessable income

5. The proceeds from the sale of the Growers' rights, titles and interests in the Project is in respect of the Growers' interest in the standing timber, as the other associated rights, titles and interests are considered to have no value.

6. The sale of standing timber under the liquidation process is the disposal of trading stock outside the ordinary course of business. The treatment of assessable income on disposal of trading stock outside the ordinary course of business is described in section 70-90.^[1]

7. By way of section 70-90, Growers are required to include the market value of that trading stock on the day of disposal, in their assessable income for the income year of the disposal.

8. For the purposes of section 6-5, Growers are required to include their share of the harvest proceeds and other amounts payable to the Growers under the liquidation process in their assessable income in the year they are derived.

9. The final amount to be distributed to the Growers by the liquidator (the Net Distribution Amount) will not be known until just prior to the distribution. This will occur when all costs and competing claims have been finalised as part of the liquidation process.

10. As a consequence, there was no simple way for Growers to determine the market value of their interest in the trading stock, at the time of disposal.

11. Notwithstanding the requirement to return the market value of their interest in the trading stock as assessable income in the year in which the disposal happened, and the requirement to return harvest proceeds and the other amounts referred to in paragraph 8 of this withdrawal notice in the year in which they are derived, the Commissioner will accept that Growers in the Project can:

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treat the Net Distribution Amount as the amount required to be returned as assessable income, and

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return the Net Distribution Amount, in their assessable income in the income tax year in which the distribution is received.

12. Class Ruling CR 2016/19 Income tax: liquidation - Great Southern Plantation and Gunns Plantations Limited Woodlot Schemes sets out the tax outcomes for Growers or their associates arising as a consequence of the disposal of their rights, titles and interest in the Project.

Deductions

13. Paragraphs 60 to 72 of PR 2004/114 explain how the Growers' participation in the Project constitutes the carrying on of a business of primary production by the Growers.

14. Growers that continued to have an interest in the Project up until the date they receive the final Net Distribution Amount, were entitled to claim deductions for the expenditure outlined in paragraphs 54 and 57 of PR 2004/114.

15. Any expenditure that a Grower incurred prior to the date they receive the final Net Distribution Amount, but did not actually pay is not deductible, because these amounts have been taken into account in calculating the Net Distribution Amount.

16. From the date they receive the final Net Distribution Amount, Growers in the Project ceased carrying on a business of primary production, and are no longer entitled to claim deductions, with the exception of interest which may continue to be deductible (see paragraphs 19 and 20 of this withdrawal notice).

Deferral of losses from non-commercial business activities

17. Division 35 only applies to individuals, alone or in partnership, in income years in which they are carrying on a business activity. In PR 2004/114, the Commissioner conditionally undertook to exercise his discretion under paragraphs 35-55(1)(b) or (c), to allow losses incurred by Growers to be offset against other assessable income in the income year in which the losses arose, for the relevant income years.

18. The Commissioner's discretion under paragraphs 35-55(1)(b) and (c) is no longer required in respect to the Projects for the year in which the Growers' interests in the Project were disposed of, and for later income years.

Interest

19. Where Growers have used loans to finance their participation in the Project, any interest incurred on the loan will continue to be deductible under section 8-1 in the year it is incurred, provided the requirements outlined in Taxation Ruling TR 2004/4 Income tax: deductions for interest incurred prior to the commencement of, or following the cessation of, relevant income earning activities are satisfied.

20. The deductibility of interest on such loans is unaffected by the loss deferral rules in Division 35, from the year in which the Growers dispose of their interests in the Project, and for later income years (see paragraphs 17 and 18 of this withdrawal notice).

Commissioner of Taxation
20 March 2019

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).

References

ATO references:
NO 1-H86R1L4

Related Rulings/Determinations:

CR 2016/19
IT 360
TR 92/1
TR 92/20
TR 97/11
TR 97/16
TR 98/22
TR 2000/8
TR 2001/14
TR 2004/4
TD 93/34
PR 1999/95

Subject References:
advance deductions and expenses for certain forestry expenditure
carrying on a business
commencement of business
fee expenses
forestry agreement
interest expenses
management fees
non-commercial business activities
producing assessable income
product rulings
public rulings
seasonally dependent agronomic activity
tax avoidance
tax benefits under tax avoidance schemes
tax shelters
tax shelters project
taxation administration

Legislative References:
ITAA 1936 82KL
ITAA 1936 Pt III Div 3 Subdiv H
ITAA 1936 82KZL
ITAA 1936 82KZL(1)
ITAA 1936 82KZM
ITAA 1936 82KZMA
ITAA 1936 82KZMB
ITAA 1936 82KZMC
ITAA 1936 82KZMD
ITAA 1936 82KZME
ITAA 1936 82KZME(1)
ITAA 1936 82KZME(2)
ITAA 1936 82KZME(3)
ITAA 1936 82KZME(4)
ITAA 1936 82KZME(7)
ITAA 1936 82KZMF
ITAA 1936 82KZMF(1)
ITAA 1936 82KZMG
ITAA 1936 82KZMG(1)
ITAA 1936 82KZMG(2)
ITAA 1936 82KZMG(3)
ITAA 1936 82KZMG(4)
ITAA 1936 82KZMG(5)
ITAA 1936 Pt IVA
ITAA 1936 177A
ITAA 1936 177C
ITAA 1936 177D
ITAA 1936 177D(b)
ITAA 1997 6-5
ITAA 1997 8-1
ITAA 1997 17-5
ITAA 1997 Div 27
ITAA 1997 Div 35
ITAA 1997 35-10
ITAA 1997 35-10(2)
ITAA 1997 35-55
ITAA 1997 35-55(1)(b)
ITAA 1997 70-90
ITAA 1997 Div 328
ITAA 1997 328-105
ITAA 1997 328-105(1)(a)
ITAA 1997 Subdiv 328-F
ITAA 1997 Subdiv 328-G
TAA 1953 Pt IVAAA
Copyright Act 1968

Case References:
Commission of Taxation v. Lau
(1984) 6 FCR 202
84 ATC 4929
(1984) 16 ATR 55