Product Ruling

PR 1999/27

Income tax: Barkworth Olive Groves Project No 3

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FOI status:

May be releasedFOI number: I 1015605

Preamble

What this Product Ruling is about

1. This Ruling sets out the Commissioner's opinion on the way in which the 'tax law(s)' identified below apply to the defined class of persons, who take part in the arrangement to which this Ruling relates. In this Ruling this arrangement is sometimes referred to as the Barkworth Olive Groves Project No 3 offered by Barkworth Olive Groves Limited, or just simply as 'the Project', or the 'product'.

Tax law(s)

2. The tax law(s) dealt with in this Ruling are:

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section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997);

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section 8-1 of the ITAA 1997;

•

section 70-35 of the ITAA 1997;

•

section 387-125 of the ITAA 1997;

•

section 387-185 of the ITAA 1997;

•

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936);

•

section 82KL of the ITAA 1936; and

•

section 82KZM of the ITAA 1936.

Class of persons

3. The class of persons to whom this Ruling applies ('Grower/Processors') is those who enter into the arrangement described below on or after the date this Ruling is made. They will have an intention of staying in the arrangement until it is completed (i.e., being a party to the relevant agreements until their term expires) with a purpose of deriving assessable income from this involvement as set out in the description of the arrangement.

4. The class of persons to whom this Ruling applies does not include persons who intend to terminate their involvement in the arrangement prior to its completion, or who otherwise do not intend to derive assessable income from it.

Qualifications

5. This Ruling provides this specified class of persons with a binding ruling as to the tax consequences of this product. The Commissioner accepts no responsibility in relation to the commercial viability of this product, and gives no assurance the prices charged for the product are reasonable, appropriate, or represent industry norms. A financial (or other) adviser should be consulted for such information.

6. The Commissioner rules on the precise arrangement identified in the Ruling.

7. The class of persons defined in the Ruling may rely on its contents, provided the arrangement (described below at paragraphs 12 to 29) is carried out in accordance with details described in the Ruling. If the arrangement described in the Ruling is materially different from the arrangement that is actually carried out:

•

the Ruling has no binding effect on the Commissioner, as the arrangement entered into is not the arrangement ruled upon; and

•

the Ruling will be withdrawn or modified.

8. A Product Ruling may only be reproduced in its entirety. Extracts may not be reproduced. As each Product Ruling is copyright, apart from any use as permitted under the Copyright Act 1968, no Product Ruling may be reproduced by any process without prior written permission from the Commonwealth. Requests and inquiries concerning reproduction and rights should be addressed to the Manager, Legislative Services, AusInfo, GPO Box 1920, Canberra ACT 2601.

Date of effect

9. This Ruling applies prospectively from 19 May 1999, the date this Ruling is made. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

10. If a taxpayer has a more favourable private ruling (which is legally binding), the taxpayer can rely on the private ruling if the income year to which the private ruling relates has ended, or has commenced but not yet ended. However, if the arrangement covered by the private ruling has not begun to be carried out, and the income year to which it relates has not yet commenced, the product ruling applies to the taxpayer to the extent of the inconsistency only (see Taxation Determination TD 93/34).

Withdrawal

11. This Product Ruling is withdrawn and ceases to have effect after 9 March 2000. The Ruling continues to apply, in respect of the tax law(s) ruled upon, to all persons within the specified class who enter into the specified arrangement during the term of the Ruling. Thus, the Ruling continues to apply to those persons, even following its withdrawal, for arrangements entered into prior to withdrawal of the Ruling. This is subject to there being no material difference in the arrangement or in the persons' involvement in the arrangement.

Arrangement

12. The arrangement that is the subject of this Ruling is described below. This description is based on the following documents. These documents, or relevant parts of them, as the case may be, form part of and are to be read with this description. The relevant documents or parts of documents incorporated into this description of the arrangement are:

•

Application for Product Ruling dated 22 December 1998;

•

Constitution of Barkworth Olive Groves Limited (BOGL);

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Prospectus for Barkworth Olives Project No 3;

•

Management Agreement between Barkworth Olives Management Limited (BOML) and Grower/Processors;

•

Constitution of Barkworth Olives Project No 3, which covers Grower/Processors who enter into a Management Agreement with BOML;

•

Compliance Plan of Barkworth Olives Project No 3, which applies to BOML;

•

Factory Access Agreement between BOGL and Inglewood Olive Processors Limited;

•

Letter dated 28 April 1999 from ATO to Ernst & Young; and

•

Letter of reply dated 3 May 1999 from Ernst & Young to ATO.

The salient features and effect of these arrangements are summarised below:

13. This arrangement is called 'Barkworth Olive Groves Project No 3'. Under the arrangement an investor may purchase 'C' class shares in Barkworth Olive Groves Limited (BOGL). (Note that the Project will not proceed unless the minimum subscription of 400 applications is achieved.) If the investor purchases the minimum number of shares, being 250 $1 shares, the investor will obtain a right to farm an identified area of cleared land of approximately 0.08 hectare owned by BOGL. Such an investor is known as a 'Grower'. Each farm will be suitable for the growing of 20 olive trees. Each Grower will also obtain a right to process up to 1.5 tonnes of olives per annum. A Grower will pay monies to BOGL on account of the subscription price of shares, farm administration fees and factory access fees.

14. Each Grower may (but is not required to) appoint Barkworth Olives Management Limited (BOML) to manage that Grower's farm. A Grower who appoints BOML is known as a 'Grower/Processor'. As well as the outlays mentioned in paragraph 13, Grower/Processors will outlay monies under the arrangement for the purchase of olive trees, irrigation works, processing and marketing fees, management fees and brand name licence fees.

15. BOGL is the owner of land situated in the northern extreme of the Inverell Shire in New south Wales. The land fronts the Dumaresq River, which forms the border between Queensland and New South Wales. The Project will utilise part of this land. The remainder of the land has either been used for earlier projects or has been reserved for future use.

Rights of shareholders (Growers)

16. The rights of shareholders are set out in BOGL's Constitution. In particular:

•

a Grower shall have a right to occupy a section of the land owned by BOGL and specified in the Company's Constitution, subject to that Grower paying administration fees to BOGL;

•

a Grower shall have a right to an annual processing allocation of up to 1.5 tonnes of olives, subject to that Grower paying factory access fees to BOGL;

•

a Grower shall be entitled to use the agricultural infrastructure necessary for the Grower's business, including but not limited to access to irrigation mains, storage areas and access roads.

•

a Grower shall be entitled to use the processing infrastructure necessary for the Grower's business, including but not limited to loading and unloading equipment, storage areas, grading and sampling equipment;

•

the 'C' class shares will convert to ordinary shares on 1 July 2019. At that time, the benefit of and the responsibility for the olive trees situated on a Grower's farm will pass to BOGL. The Grower will no longer have a right to farm the land and his/her interest will be the rights attaching to that Grower's ordinary shares in BOGL. The taxation consequences, flowing from the events occurring at that time, do not form part of this Ruling; and

•

a Grower may conduct that Grower's business personally, appoint an agent or contractor to manage the business, or appoint BOML to manage the business in accordance with the Management Agreement.

Ruling only applies to Growers who enter into Management Agreements with BOML

17. It is expected that most Growers will elect to enter into a Management Agreement with BOML.

18. However, if Growers harvest and process their own olives or appoint other agents to do this, their circumstances may be unique and their tax affairs will likely be different from those Growers who enter into Management Agreements with BOML. Growers who do not enter into Management Agreements with BOML do not fall within the defined 'Class of persons' for the purposes of this Ruling. This Ruling only applies to Grower/Processors who enter into Management Agreements with BOML.

Management Agreement with BOML (Grower/Processors)

19. Under the Management Agreement with BOML, the Manager agrees to carry out duties that relate to:

•

soil conditioning, fertilising and drainage of the land, planting, maintaining, processing and marketing on the Grower/Processor's behalf during the first 13 months of the Agreement; and

•

ongoing management, harvesting, processing and marketing.

20. Under the Management Agreement, BOML will acquire olives produced by Grower/Processors prior to processing. BOML will also acquire olives from other sources for processing under the Grower/Processors' processing allocations. BOML must account to the Grower/Processors for the proceeds from the sale of olives attributable to their farms and from the sale of processed olives and olive products attributable to their processing allocations.

21. Grower/Processors who appoint BOML may still elect to take control of the following activities on their farms:

•

weeding;

•

harvesting trees; and

•

marketing olives and olive products.

22. In the event that a Grower/Processor makes such an election, the management fees payable to BOML may be reduced. However, tax implications may be different for Grower/Processors who elect to harvest and/or market their own olives and olive products - refer paragraphs 29, 47 and 50.

Expenditure

23. The expenditure to be paid by a Grower to BOGL (the land owner) principally relates to the following periods:

24. The expenditure to be paid under the Management Agreement, by a Grower who appoints BOML as manager, principally relates to the following periods:

Finance

25. Finance is not provided under the arrangement and is therefore outside the scope of this Ruling.

Income

26. Under the arrangement, income will be received from two types of business. Income from the sale of raw olives is derived from a business of primary production. Income from the sale of processed olives and processed olive products is derived from a business involving non-primary production activities.

27. BOML has undertaken to advise Grower/Processors each year of the apportionment between the two types of income.

Trading stock

28. Where BOML performs all functions on behalf of Grower/Processors, olives to be used for processing will be acquired by BOML before processing. Under the terms of the arrangement, all olives will be trading stock of BOML.

29. Grower/Processors who elect to do their own harvesting or processing may have trading stock on hand at the end of the financial year.

Ruling

30. For Grower/Processors who invest in the Project by 30 June 1999 and who prepay the amounts for Years 1 and 2, the following deductions will be available under the ITAA 1997 for the years ended 30 June 1999 and 30 June 2000:

31. No figure is shown as a deduction for brand name licence in the year ended 30 June 2000 as it is not possible to prepay this fee in that year. In accordance with the Year 2 table in paragraph 24, the amount will be the lesser of $500 or the gross income generated from the sale of the processed olives attributable to the Grower/Processor's allocation. This amount will be deductible in the year ended 30 June 2001. Provided the irrigation fee is prepaid, the only other deductible expense in the year ended 30 June 2001 will be $342 under section 387-125.

32. Similar deductions will be available for Grower/Processors who don't prepay the expenses for Years 1 and 2. However, in those circumstances, the time at which the deductions are claimable will be as per the tables in paragraphs 23 and 24 for all deductions excluding irrigation. For Grower/Processors who don't pay the irrigation fee by 30 June 1999, deductions of $342 will be available in each of the years ending 30 June 2000, 30 June 2001 and 30 June 2002.

33. Deductions for Grower/Processors in Year 3, i.e., year ended 30 June 2002, will be in accordance with the tables in paragraphs 23 and 24. The amounts as calculated will be deductible under section 8-1. In addition, establishment costs will be deductible in accordance with paragraphs 38 to 41.

Farm administration

34. The farm administration fee is levied annually by BOGL for the administration of Grower's farms. A deduction is allowed under section 8-1.

Factory access

35. The factory access fee is levied annually by BOGL so that Growers can have access to the olive-processing factory. A deduction is allowed under section 8-1.

Irrigation

36. Irrigation expenses are a capital expense. A deduction under section 387-125 is available to Grower/Processors in the year the expenditure is incurred and two years following at the rate of 33.3% per annum.

Processing and marketing

37. The processing and marketing fee is levied annually by BOML for the processing and marketing of olives and olive products on the behalf of Grower/Processors. A deduction is allowed under section 8-1.

Management and establishment

38. Part of the management fee relates to ongoing costs incurred by BOML on behalf of Grower/Processors. Ongoing costs are revenue in nature and are deductible under section 8-1.

39. Part of the management fee relates to establishment costs; i.e., preparing the ground and planting trees. Establishment costs are capital in nature and are not deductible unless specific provisions allow for their deduction.

40. Establishment costs that relate to preparing the ground may be deductible as landcare expenses under section 387-55.

41. Establishment costs that relate to the planting of trees form part of the cost of the trees. The cost of the trees is written off over the life of the trees under section 387-165. The amount of write-off is 7% of the cost of the trees. The period of write-off commences from when the trees enter their first commercial season.

Brand name licence

42. Brand name licence fees are incurred by Grower/Processors in respect of Years 1 and 2 so that processed olives and olive products may be marketed under brand names controlled by BOML. The expense is deductible under section 8-1.

Section 82KZM

43. The expenditure by Grower/Processors does not fall within the scope of section 82KZM.

Section 82KL

44. Section 82KL does not apply to deny the deductions otherwise allowable under section 8-1.

Part IVA

45. The provisions in Part IVA will not be applied to the arrangement described in this Ruling.

Trading stock

46. Where BOML performs all functions for Grower/Processors, the trading stock provisions do not apply as the olives or processed products are trading stock of BOML.

47. In contrast, Grower/Processors who elect to do their own harvesting or processing must account for trading stock.

Income

48. Income derived from the sale of raw olives is primary production income. Income from the sale of processed olives and olive products is income from non-primary production activities.

49. Where BOML buys produce from Grower/Processors or sells produce on their behalf, income will be derived when the amounts owing to Grower/Processors have been determined and finalised.

50. Other Grower/Processors will need to return income on the accruals basis.

Explanations

Section 8-1

51. Consideration of whether management fees are deductible under section 8-1 begins with the first limb of the section. This view proceeds on the following basis:

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the outgoings in question must have a sufficient connection with the operations or activities that directly gain or produce the taxpayer' s assessable income;

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the outgoings are not deductible under the second limb if they are incurred when the business has not commenced; and

•

where all that happens in a year of income is that a taxpayer contractually commits himself to a venture that may not turn out to be a business, there can be doubt about whether the relevant business has commenced, and hence, whether the second limb applies. However, that does not preclude the application of the first limb and determining whether the outgoings in question have a sufficient connection with activities to produce assessable income.

52. The growing of olive trees can constitute the carrying on of a primary production business. Where there is a business, or a future business, the gross sale proceeds from the sale of the olives or olive products from the Project will constitute gross assessable income in their own right. The generation of 'business income' from such a business, or future business, provides the backdrop against which to judge whether the outgoings in question have the requisite connection with the operations that more directly gain or produce this income. These operations will be the planting, tending and maintaining of the olive trees and the harvesting, processing and marketing of the produce.

53. For this Project, Grower/Processors have rights in the form of a licence over an identifiable area of land consistent with the intention to carry on a business of growing olives trees to produce olives for commercial exploitation. Grower/Processors also have rights to process and market olives and olive products. Under the Management Agreement, Grower/Processors appoint BOML to provide services related to the cultivation of olive trees and the processing and marketing of olive products. From the information provided, Grower/Processors control their investment in the Project.

54. Grower/Processors will not use the land for any purpose other than the growing of olive trees for producing olives. They will appoint BOML to perform the obligations and duties imposed on it under the Management Agreement. The Grower/Processors' degree of control over BOML, as evidenced by the Compliance Plan and Constitution of the Project, and supplemented by the Corporations Law, is sufficient. Under the Project, Grower/Processors are entitled to receive regular progress reports on BOML's activities. In addition, they are able to terminate arrangements with BOML in certain instances, such as cases of default or neglect. The business activities described in the Management Agreement are carried out on the Grower/Processors' behalf.

55. The general indicators of a business, as used by the Courts, are described in Taxation Ruling TR 97/11. Positive findings can be made from the arrangement's description for all the indicators discussed in that Ruling. Grower/Processors to whom this Ruling applies intend to derive assessable income from the Project. This intention is related to projections contained in the Prospectus that suggest the Project should return a 'before tax' profit to the Grower/Processors, i.e., a 'profit' in cash terms that does not depend on its calculation on the fees in question being allowed as a deduction.

56. Grower/Processors have a continuing interest in the Project until 30 June 2019. The activities, and hence the fees associated with their procurement, are consistent with an intention to commence regular activities that have an 'air of permanence' about them. The Grower/Processors' activities of cultivating olive trees and marketing olive products will constitute the carrying on of a business.

57. The activities the Manager is required to undertake are listed in the Management Agreement between the Grower/Processor and Manager (see summary at paragraph 19). Some of these activities are of a capital nature. Project costings obtained from BOML's tax professional adviser outline how the management fees will be spent. Some of these monies will be spent on items that are of a revenue or capital nature, while other expenditures are more properly classified as something else.

58. Under the Management Agreement the management fee is an undissected lump sum in return for which the grower obtains services of both a revenue and capital nature. Ronpibon Tin v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431 provides authority for the apportionment of the management fee in determining deductibility under section 8-1.

59. The joint judgment of the High Court in Ronpibon Tin stated that subsection 51(1) of ITAA 1936 'contemplates apportionment' and 'there are at least two kinds of expenditure which require apportionment'. One of the described kinds of apportionable expenditure is a 'single outlay or charge which serves both object indifferently', those objects being previously described as 'expenditure in respect of things or services of which distinct and severable parts are devoted to gaining or producing assessable income and distinct or severable parts to some other cause' (CLR at 59; ATD at 437). The management fee paid by the Grower/Processors is an example of such an expenditure.

60. The management fee paid by the Grower/Processor is for activities that are of a revenue and capital nature and in accordance with paragraph 8-1(2)(a) of the ITAA 1997, the management fee is not an allowable deduction to the extent it is a loss or outgoing of capital or of a capital nature. That part of the management fee that is deductible under section 8-1 is shown in the table at paragraph 30.

61. From the information supplied by BOML's tax professional adviser and having regard to the contractual terms of the various agreements, an estimation of the cost of various advantages that will directly accrue to the Grower/Processors has been identified. Some of the costs and profits of the manager's business do not provide a direct advantage to the investor and these have been apportioned across the items that more directly provide advantages to the Grower/Processors. In allocating these indirect costs to direct revenue and capital costs, the percentage that the indirect costs bear to direct costs is calculated as follows:

(Total projected overheads (indirect expenses) plus profit) / Total projected direct expenses x (100/1)


62. The resulting percentage is a 'mark-up' figure that was applied to all direct costs. By applying the mark-up figure to all direct costs, all indirect costs and profits will be absorbed in the costs that more directly advantage the investor, ensuring that the entire sum of management fees in Year 1 is referable to one advantage or another.

63. The marked-up revenue component of the management fee is the relevant deduction for management fees under section 8-1. Expenditures that are acceptable as being incurred for the purposes of Subdivisions 387-55 (Landcare) and 387-165 (Expenditure in establishing horticultural plants) are also to be increased by the same mark-up percentage shown above. The expenditures that are deductible under Subdivisions 387-55 and 387-165 are stated in the table at paragraph 30.

Subdivision 387-A

64. As mentioned in paragraphs 37 and 38, some of the management fee is attributable to landcare.

65. Subdivision 387-A allows a taxpayer, who is carrying on a business of primary production on land in Australia, to claim a deduction for capital expenditure on 'Landcare operations'. The term landcare operation is defined in section 387-60.

66. Landcare operation, as relevant to the Project, comprises constructing surface or subsurface drainage works on the land primarily and principally for controlling salinity or assisting in drainage control. In order to qualify for a deduction under section 387-55, a business must be carried on at the time that the expenditure is incurred.

67. A deduction under section 387-55 will be allowed in the year in which Grower/Processors enter into contractual arrangements and commence to carry on a primary production business.

Subdivision 387-B

68. Subdivision 387-B allows a taxpayer, who is carrying on a business of primary production on land in Australia, to claim a deduction for capital expenditure on conserving or conveying water. The deduction is allowed over a three year period and applies to plant or a structural improvement primarily or principally used for the purpose of conserving or conveying water for use in a primary production business. Irrigation systems of the kind proposed would be covered by this Subdivision.

69. In accordance with the Management Agreement, an irrigation fee is payable by a Grower/Processor. This is considered to be capital expenditure incurred on the construction, manufacture, installation or acquisition of a 'water facility' primarily and principally for the purpose of conveying water for use in a primary production business, as set out in section 387-125. Examples of a water facility include a dam tank bore, irrigation channel (or similar improvement), pipe and pump. Under section 387-125 there is no requirement that the taxpayer actually own the 'water facility'.

70. The growing of olive trees to produce olives for commercial exploitation is considered to be a primary production business provided that the taxpayer is actually carrying on a business. The Grower/Processors in the Project satisfy the requirements of section 387-125. Accordingly, the irrigation fee is deductible in equal amounts over three (3) years of income, commencing the year of income that the Grower/Processors incur that expenditure, which will be the year of income ending 30 June 1999 or 2000, as the case may be.

Subdivision 387-C

71. Subdivision 387-C allows capital expenditure on establishing horticultural plants owned and used, or held ready for use, in Australia in a business of horticulture, to be written off for tax purposes. A lessee or licensee of land carrying on a business of horticulture is taken to own the plants growing on that land rather than the actual owner of the land.

72. Under this Subdivision, if the effective life of the plant is less than three years the expenditure can be written off in full. If the effective life of the plant is more than three years an annual deduction is allowable on a prime cost basis during the plant's maximum write-off period. The period starts from the time the plant is first used to produce assessable income. The write-off rate is detailed in section 387-185. For a plant with an effective life in excess of 30 years, as in this Project, that rate is 7%.

73. The establishment cost of the trees is the $90 purchase cost mentioned in paragraph 24, together with other establishment costs mentioned in paragraph 38. The total cost amounts to $240. This is considered to be capital expenditure attributable to the establishment of horticultural plants for use in a horticulture business as set out in Subdivision 387-C. It is considered that the necessary conditions for the application of section 387-165 are satisfied having regard to the following matters:

a.

olive trees fall within the definition of a horticultural plant;

b.

the Grower/Processors are treated as owners of the horticultural plant on the basis that they hold a licence over the relevant lands to which the plant is attached (section 387-210);

c.

expenditure of a capital nature will be incurred in the establishment of the olive trees, such expenditure not being deductible under any other provision of the ITAA;

d.

the olive trees are considered to have an effective life in excess of 30 years;

e.

the activities being carried on by the Grower/Processors constitute a horticultural business; and

f.

no part of the expenditure is in respect of draining swamp or low-lying land or the clearing of land.

74. A deduction is only available in the year in which the plant is first used or held ready for use. A plant is considered to be first used or held ready for use from the beginning of what is expected to be its first commercial season. In the case of this Project, that is expected to be the year ended 30 June 2003.

75. Section 387-165 provides a write-off for the olive grove establishment fees at the rate of 7% pa. In this case it is expected that the deduction will commence from the year ended 30 June 2003.

Section 82KZM

76. Section 82KZM operates to spread over more than one income year a deduction for prepaid expenditure that would otherwise be immediately deductible, in full, under section 8-1. The section applies if certain expenditure incurred under an agreement is in return for the doing of a thing under the agreement that is not wholly done within 13 months after the day on which the expenditure is incurred.

77. Under the Management Agreement, fees are payable by a Grower/Processor for services which are provided within 13 months.

78. For this Ruling's purposes, no explicit conclusion can be drawn from the arrangement's description that the fees have been inflated to result in reduced fees being payable for subsequent years. The fees are expressly stated to be for a number of specified services. There is no evidence that might suggest the services covered by the fees could not be provided within 13 months of incurring the expenditure in question. Thus, for the purposes of this Ruling, it can be accepted that no part of the fees are for the doing of things that are not to be wholly done within 13 months of the fees being incurred.

79. On this basis, the basic precondition for section 82KZM's operation is not satisfied and it will not apply to the expenditure incurred by Grower/Processors in respect of the years ending 30 June 1999 or 2000, as the case may be.

Section 82KL

80. Section 82KL is a specific anti-avoidance provision that operates to deny an otherwise allowable deduction for certain expenditure incurred, but effectively recouped, by the taxpayer. Under subsection 82KL(1), a deduction for certain expenditure is disallowed where the sum of the 'additional benefit' plus the 'expected tax saving' in relation to that expenditure equals or exceeds the 'eligible relevant expenditure'.

81. 'Additional benefit' (see the definition of 'additional benefit' at subsection 82KH(1) and paragraph 82KH(1F)(b)) is, broadly speaking, a benefit received which is additional to the benefit for which the expenditure is ostensibly incurred. The 'expected tax saving' is essentially the tax that is saved if a deduction is allowed for the relevant expenditure.

82. Section 82KL's operation depends, among other things, on the identification of a certain quantum of 'additional benefit(s)'. For the purposes of the section, there are no additional benefits that will apply to deny the deductions otherwise allowable under section 8-1.

Part IVA

83. For Part IVA to apply there must be a 'scheme' (section 177A of ITAA 1936); a 'tax benefit' (section 177C); and a dominant purpose of entering into the scheme to obtain a tax benefit (section 177D). The Barkworth Olive Groves Project No 3 is a 'scheme' commencing when the Prospectus was issued. However, it is not possible to conclude that Grower/Processors will enter into the scheme with the dominant purpose of obtaining a tax benefit.

84. Grower/Processors to whom this Ruling applies intend to stay in the scheme for its full term and derive assessable income from the eventual harvesting and sale of the olives. Further, there are no features of the Project, for example, where fees are considered to be 'excessive' and uncommercial, and predominantly financed by a non-recourse loan, and resulting in insufficient 'real money' coming into the Manager's hands that might suggest the Project was so 'tax driven', and so designed to produce a tax deduction of a certain magnitude that the Project would attract the operation of Part IVA.

Trading stock

85. Taxation Ruling TR 94/13 considers trading stock in relation to various marketing arrangements as they apply to cotton growers. One of the marketing arrangements discussed in that ruling is similar to the arrangement that exists between BOML and Grower/Processors.

86. Under the Project's Constitution, raw olives are 'pooled' prior to sale and processing. When this pooling occurs, BOML takes possession of the olives. Given that the arrangement is in effect the same as the 'pooled' arrangements described in TR 94/13, the tax consequences will be the same.

87. Grower/Processors who have agreed with BOML to have their olives 'pooled' no longer have dispositive power over the olives and will not be in possession of trading stock.

88. Grower/Processors who harvest and/or process their own olives will not take part in the 'pooled' arrangement with BOML. If they retain dispositive power over their produce, they will have to account for trading stock - as is the case in TR 94/13.

Detailed contents list

89. Below is a detailed contents list for this Ruling:

Commissioner of Taxation
19 May 1999

No draft issued

References

ATO references:
NO 99/12291-6

Related Rulings/Determinations:

PR 98/1
TR 92/1
TR 94/13
TR 97/11
TR 97/16
TD 93/34

Subject References:
carrying on a business
commencement of business
crops as trading stock
fee expenses
horticulture
irrigation expenses
management fees expenses
plantation forestry
primary production
primary production expenses
primary production income
producing assessable income
product rulings
public rulings
schemes and shams
tax administration
tax avoidance
tax benefits under tax avoidance schemes
tax shelters
tax shelters project
trading stock

Legislative References:
ITAA 1997 6-5
ITAA 1997 8-1
ITAA 1997 8-1(2)(a)
ITAA 1997 70-C
ITAA 1997 70-35
ITAA 1887 387-A
ITAA 1997 387-55
ITAA 1997 387-60
ITAA 1997 387-B
ITAA 1997 387-125
ITAA 1997 387-C
ITAA 1997 387-165
ITAA 1997 387-185
ITAA 1936 51(1)
ITAA 1936 82KH(1)
ITAA 1936 82KH(1F)(b)
ITAA 1936 82KL
ITAA 1936 82KL(1)
ITAA 1936 82KZM
ITAA 1936 Part IVA
ITAA 1936 177A
ITAA 1936 177C
ITAA 1936 177D

Case References:
Ronpibon Tin v Federal Commissioner of Taxation
(1949) 78 CLR 47
(1949) 8 ATD 431