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12 Apr 07 Registered agricultural managed investment schemes - TR 2007/D2

This draft Taxation Ruling was released on 11 April 2007 for public comment by 25 May 2007.

The draft Ruling deals with the application of s 8-1 of ITAA 1997 to contributions by investors to registered agricultural managed investment schemes. The draft Ruling also deals with the question of whether interim and final returns to investors are, either wholly or in part, an amount of ordinary income for the purposes of s 6-5, or an amount of "statutory income" for the purposes of s 6-10.

The draft Ruling states, at paras 6 and 7:

"The position in TR 2000/8 has been reviewed in light of recent case law, including that concerning the Corporations Act as it relates to managed investment schemes. As a result, the better view is considered to be that investor contributions should more properly be characterised according to the substance of the schemes in question...This approach produces the result that these contributions are considered to be of a capital nature, because they are the capital cost of the investor’s interest in the scheme, and hence not deductible amounts under s 8-1 (per paragraph 8-1(2)(a))."

And, in para 19, the draft Ruling states:

"...provided that Division 6C of Part III of the ITAA 1936 does not apply, interim and final returns are ‘*statutory income’ for the purposes of section 6-10 of the ITAA 1997."

It is proposed that when the final Ruling is issued, it will apply to losses or outgoings incurred, and amounts included in assessable income, in relation to schemes begun to be carried out on and after 1 July 2008, in accordance with the transitional arrangement announced by the Commissioner on 27 March 2007: see 2007 TAXVINE No 11 (32) (30 March 2007).

In a media release issued on 11 April 2007, the Commissioner, Michael D’Ascenzo, said developments in case law have required the ATO to reconsider its views on the deductibility of investments in both forestry and non-forestry schemes.

“Our reconsidered view is that investor contributions to such schemes are capital expenditure and therefore not deductible.“

The ATO is working with industry and affected taxpayers to urgently identify and expedite a test case to clarify this reconsidered view, and is allowing transitional relief in the interim.

Investments in agricultural managed investment schemes that are covered by existing product rulings will not be affected by the draft ruling, provided that the project is implemented in accordance with the product ruling.

For a copy of TR 2007/D2, go here

For a copy of the ATO media release, No Nat 2007/11, 11 April 2007, go here

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